Federal Court of Australia

Auken Animal Husbandry Pty Ltd v 3RD Solution Investment Pty Ltd [2020] FCA 1153

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 47A(1) of the Federal Court of Australia Act 1976 (Cth), the applicant has leave for the testimony of the eight witnesses identified in its interlocutory application filed on 24 July 2020 to be given by way of audio visual link from Shanghai, People’s Republic of China.

2.    The leave referred to in Order 1 is subject to the following conditions attaching to the giving of the testimony:

(a)    The witnesses will give their testimony from a hearing room in the offices of Baker McKenzie in Shanghai;

(b)    At the time that a witness is giving evidence, no one else will be present in the hearing room save for a person independent of the applicant and its Chinese lawyers, JunZeJun, to assist with technical or administrative issues and a lawyer from Baker McKenzie, whose name will be provide to the Court, who will be responsible for ensuring that the witness’s evidence is their own and that they are not prompted or otherwise assisted in answering questions;

(c)    The evidence of each witness will not be available to any other witness yet to give evidence on any medium including video, audio or transcript;

(d)    Documents to be shown to a witness will be made available as needed on a separate screen for viewing by the witness;

(e)    The evidence of the witnesses will be interpreted by an interpreter who is appropriately qualified and experienced, agreed to by the parties and present in the courtroom in Sydney;

(f)    The applicant’s Sydney based solicitors are responsible for taking all necessary steps to ensure that the above conditions are met.

3.    The applicant’s interlocutory process filed on 24 July 2020 is otherwise dismissed.

4.    The costs of the application are costs in the cause in the principal proceeding, save that the parties have leave to apply for a reconsideration of that costs order by the filing of written submissions (of no more than three pages) within seven days of these orders.

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

REASONS FOR JUDGMENT

STEWART J:

Introduction

1    In February of this year, the trial in this proceeding was listed for 12 October 2020 with an estimate of 13 days. The commencement of the trial is therefore approximately two months hence.

2    By interlocutory application filed on 24 July 2020, the applicant in the proceeding seeks the following orders:

(1)    that it have leave for certain of its witnesses to give their evidence from Shanghai, People’s Republic of China (PRC), by audio visual link (AVL);

(2)    restraining the first respondent’s dealings with the proceeds of sale (or encumbrance) of the Kia Ora Farm without first giving the applicant 21 days’ written notice; and

(3)    in the alternative to the order for evidence by AVL, vacation of the trial dates.

3    The respondents oppose orders 1 and 2. I understand the respondents to accept that a refusal of order 1 will necessarily result in the trial dates being vacated. That is because it is common ground that the applicant’s witnesses are in the PRC and there is no reasonable prospect under the conditions of the current novel coronavirus pandemic that in two months’ time they will be able to travel to Australia to give their evidence.

4    For the reasons that follow, I have resolved that the applicant should have leave for its Chinese witnesses to give evidence by AVL but that its “notice order” in relation to the proceeds of sale of the farm should be refused.

Background

5    The underlying claim concerns the lease of rural land near Tamworth, known as Kia Ora Farm. The first respondent as lessor and the applicant as lessee entered into a lease of the farm on 16 September 2016. On or about that date, the applicant paid rent and security deposits totalling nearly $6 million.

6    No further rent was paid under the lease, and the first respondent terminated the lease on or about 15 May 2018.

7    In December 2018, the applicant commenced the proceeding.

8    The applicant is an indirectly wholly-owned subsidiary of a PRC corporation, Ningxia Agricultural Reclamation Group Co Ltd. Ningxia Agricultural is indirectly wholly-owned and controlled by the Government of the Ningxia Hui Autonomous Region, an area in north-western PRC.

9    The applicant seeks orders declaring the lease to be void ab initio or alternatively to vary the lease to remove from it certain obligations on the applicant, an order that the first respondent refund the sum of nearly $6 million, and orders for damages or compensation under the Australian Consumer Law, contract or tort.

10    The second respondent, Mr Carey Lee, is a director of the first respondent and is said to have made various representations that led to the conclusion of the lease. It is alleged that the representations were not only false, but, in the alternative, that the second respondent knew them to be false and intended that the applicant would rely on them. Thus, the case turns at least in part on allegations of fraud.

11    The first respondent has brought a cross-claim against the applicant. The cross-claim seeks payment of approximately $1.8 million of unpaid rent plus outgoings and rates and taxes, as well as damages for breach of the lease.

12    The trial of the matter will require resolution of, amongst other issues, competing versions of a series of oral conversations. The oral evidence of witnesses and, in particular, their cross-examination will be critical to that task. Save for formal and uncontroversial aspects, the evidence in chief will be adduced orally, and not by way of affidavit.

The applicant’s evidence in support of the giving of evidence by AVL

13    The applicant’s Australian solicitor, Mr Andrew Salgo, deposed an affidavit in support of the application. He is a partner of Baker McKenzie in Sydney. That firm has an office in Shanghai, PRC. The relevance of that will shortly become apparent.

14    Mr Salgo takes his instructions from JunZeJun law firm in Shanghai.

15    The applicant has served outlines of evidence of 10 lay witnesses. Eight of those witnesses are PRC citizens resident in the Ningxia region. None of those witnesses is able to communicate adequately in English; all will require an interpreter.

16    As indicated, it is common ground that there is no reasonable prospect that in the foreseeable future any of the applicant’s Chinese witnesses will be able to travel to Australia to give evidence. That is because of restrictions on international travel, including restrictions imposed by the Australian federal government, as a means of containing the spread of the novel SARS-CoV-2 virus that causes the disease known as COVID-19.

17    The applicant proposes that its Chinese witnesses travel to Shanghai and give their evidence from a conference room within Baker McKenzie’s offices there. There would be costs associated with the use of the facility, not for the facility itself but to pay for technical and other support including such support being given outside of ordinary office hours which may be necessitated because of the two-hour time difference between Shanghai and Sydney. It has not, however, been suggested that the costs of giving evidence by AVL would come anywhere near the cost of bringing the witnesses to Australia for the purpose of them giving evidence here. Cost is therefore not a factor raised against the application.

18    The applicant has indicated that it intends to contract with the well-known litigation support service, Law In Order, to provide a “virtual hearing solution” including secure video conferencing software that meets the technological requirements of the court, monitoring of the status of the virtual hearing at all times, controlling the audio where necessary and ensuring the speakers and witnesses are the focus at relevant times, an evidence presentation operator to rapidly display evidence on a second screen, and a technical support operator available to assist with any software or connection-related queries.

19    Mr Salgo says in his affidavit that two identified lawyers at JunZeJun law firm have advised him with regard to any restrictions under PRC law on the applicant’s witnesses giving evidence from China by AVL to Australia. That advice is the following:

(1)    The restriction on the ability of a witness in Australian proceedings to give evidence by AVL from China is to be found in Article 263 of the Civil Procedure Law of the People’s Republic of China (1991) which provides as follows:

Request for and provision of judicial assistance shall be carried out via the channels stipulated in the international treaty concluded or participated by the People’s Republic of China; where there is no treaty relations, request for and provision of judicial assistance shall be carried out via diplomatic channels.

An embassy or consulate of a foreign country based in the People’s Republic of China may serve documents on a citizen of the foreign country and carry out investigations and collection of evidence, but shall not violate the laws of the People’s Republic of China and shall not adopt mandatory measures.

Except for the circumstances stipulated in in the preceding paragraph, no foreign agency or individual shall carry out service of documents, investigation and collection of evidence in the People’s Republic of China without the consent by the relevant administrative authorities of the People’s Republic of China.

(4)    With the consent of the relevant administrative authority of the PRC as provided within Article 263, there would be no constraint on the giving of AVL evidence.

(5)    Application was made by JunZeJun law firm for approval from the relevant administrative authority of the PRC, being the Foreign Affairs Office of the Ningxia Hui Autonomous Region of China, on 8 July 2020.

(6)    The Foreign Affairs Office of the Ningxia Hui Autonomous Region of China has given its approval for an AVL hearing to be conducted.

20    Mr Salgo annexed a translation of each of the application for approval and the approval to his affidavit. The application for approval is directed to the Foreign Affairs Office of the People’s Government of Ningxia Hui Autonomous Region. The application states that the use of an AVL will help the applicant to solve the difficulty that some witnesses cannot participate in a hearing in Australia and that the “video link hearing is extremely necessary and feasible”.

21    The document which is identified by Mr Salgo, on instructions from the Chinese lawyers, as the approval is from the Foreign Affairs Office of the People’s Government of Ningxia Hui Autonomous Region. After referring to the application, it states “our office has no different opinions on the application of video court hearing on the commercial disputes arising from the investment activities by the subsidiary of your company, [the applicant]”.

The respondents’ position and evidence

22    The respondents’ solicitor, Mr Mark James Webeck of HWL Ebsworth Lawyers, deposed an affidavit. Mr Webeck annexed to his affidavit a copy of the Civil Procedure Law of the People’s Republic of China (revised in 2017). He stated that he is informed by a Fellow in Chinese Commercial Law at the University of Oxford that that is the current law operating in the PRC. That was later accepted by the applicant.

23    The 2017 version of the Civil Procedure Law appears to be relevantly identical to the 1991 version referred to by Mr Salgo, save that the relevant Article is now numbered 277 rather than 263. However, the respondents also rely on Article 276 which is in the following terms:

Pursuant to international treaties concluded or acceded to by the People’s Republic of China or in accordance with the principle of reciprocity, people’s courts and foreign courts may request mutual assistance in the service of legal documents, investigation, collection of evidence, and other acts in connection with litigation, on each other’s behalf.

If any matter in which a foreign court requests assistance would harm the sovereignty, security or public interest of the People’s Republic of China, the people’s court shall refuse to comply with the request.

24    The respondents submit that it is the relevant domestic court and not an individual litigant that is able to apply for assistance under Article 276. They also submit that there is no evidence as to the status of the Foreign Affairs Office of the People’s Government of Ningxia Hui Autonomous Region, and in particular whether it is a competent authority to give approval. They also say that the response of that office that it has “no different opinions” does not constitute an approval. On that basis they submit that this Court ought not to find that the requisite approval has been given.

25    The respondents also raise some issues with regard to the practicalities and integrity of the evidence by AVL. I will deal with those separately.

The interests of the administration of justice

26    Section 47A(1) of the Federal Court of Australia Act 1976 (Cth) provides that the court may, for the purposes of any proceeding, direct or allow testimony to be given by video link, audio link or other appropriate means. Section 47C(1) of the Act provides that the court must not exercise that power unless the court is satisfied, essentially, that the courtroom or other place where the court is sitting is equipped with facilities that enable all eligible persons present in that courtroom or place to see and hear the remote witness and that the place at which the remote witness is located is equipped with facilities that enable all eligible persons present in that place to see and hear each eligible person who is present in the courtroom or other place where the court is sitting. Eligible persons are such persons as the court considers should be treated as eligible persons for the purpose of the proceeding: s 47C(6).

27    I am satisfied with regard to the above matters. The evidence is that the relevant connection between the Court’s technology and that of Baker McKenzie in Shanghai is expected to work well with the contracted support of Law In Order. I also accept the submission that there is ample time between now and the hearing to ensure that any technical difficulties that there may be can be solved and that the system can be made to be stable and reliable.

28    I respectfully agree with and adopt what was said by Flick J in Australian Competition and Consumer Commission v Pirovic Enterprises Pty Ltd [2014] FCA 544 at [11], namely that in deciding whether or not to allow AVL evidence:

The overriding consideration must, however, forever remain what is considered by the Court to be in the best interests in the administration of justice, including the need to ensure that justice is done as between the parties.

29    His Honour also said (at [11]) that the exercise of the discretion conferred by s 47A(1) of the Act must unquestionably be guided by the facts and circumstances of the individual case in which permission is sought to adduce evidence by way of AVL.

30    I also respectfully agree with and adopt what was said by Jackson J in Australian Securities and Investments Commission v Wilson [2020] FCA 873 at [36] that the process of deliberation required in order to exercise the s 47A(1) discretion properly is accurately described as a balancing exercise.

31    In this particular case there are a number of key factors to consider.

The PRC approval issue

32    First, there is the question of whether it is lawful under PRC law for the witnesses to give evidence by AVL from the PRC and, if not, what effect that has on the proceeding in this Court. This is the respondents’ principal objection to leave being granted. They submit that the AVL evidence is unlawful, or at least has not been shown to be lawful, with the result that the oath or affirmation will not bind the witnesses to telling the truth in the sense of a criminal sanction being available in the event that they do not tell the truth.

33    Given that Mr Salgo, for the applicant, has given evidence on instructions from PRC lawyers that they have applied to what they say is the relevant authority and the applicant has been given approval by that authority, and there is nothing in the documents that they have furnished to gainsay that, I am satisfied that the applicant has the relevant approval. Albeit somewhat cryptic, and no doubt something has been lost in translation, the statement by the authority that it has “no different opinions” on the application can surely only mean that the authority agrees with the applicant that the giving of evidence by video link is “necessary and feasible”.

34    I do not accept the submission that under the Civil Procedure Law the giving of evidence by AVL from the PRC is unlawful unless it is done following a request from the receiving court. Obviously, Articles 276 and 277 are addressed principally to that mechanism, which is to say the mechanism of a foreign court requesting mutual assistance in the service of legal documents, investigation, collection of evidence and other acts in connection with litigation.

35    However, the final paragraph of Article 277 (quoted at [19(1)]) above), makes it plain enough that where the mechanisms of mutual judicial assistance are not followed there is an alternative mechanism by which it can be lawful to, relevantly, collect evidence within the PRC. That mechanism is to get the “consent by the relevant authorities” of the PRC. That is what has been done in this case. Since the witnesses are willing to give their evidence voluntarily, there is no need to compel them to give it. There is therefore no need to engage the mechanisms of mutual judicial assistance. All that is apparently required is the “consent by the relevant authorities”.

36    I also do not accept, as submitted by the respondents, that the Court’s Overseas Service and Evidence Practice Note (GPN-OSE) has anything to do with the question under consideration. The Practice Note deals with, among other things, two methods of taking evidence abroad under the Hague Convention of 18 March 1970 on the Taking of Evidence Abroad in Civil or Commercial Matters, namely letters of request and the taking of evidence by Diplomatic Officers, Consular Agents and Commissioners: [3.1]. The taking of evidence in Australia of a witness who is abroad whilst giving evidence is a very different matter that does not raise issues of sovereignty and comity. That much was explained in Joyce v Sunland Waterfront (BVI) Ltd [2011] FCAFC 95; 195 FCR 213 at [62]-[63] per Keane CJ, Dowsett and Greenwood JJ.

37    There was debate on the hearing of the application about the relevance, in this Court, of the giving of evidence by way of AVL from the PRC being unlawful under PRC law. In view of my conclusion that the relevant approval has been sought and given, there is no need to deal with that question in any detail. In relation to s 47A of the Act, the Court in Joyce explained (at [60]) that the section:

specifically authorises the exercise of this power where the person giving the testimony is in a foreign country. There are express provisions permitting the Court to dispense with the requirement for an oath or affirmation where the law in force in the foreign country does not permit such a course, or where it would be inconvenient, because of a law of that country for a person to give evidence on oath or affirmation. However the legislation does not require that the foreign state consent to a person within its borders giving evidence by video link to an Australian court. If the Parliament perceived any problem arising out of the concept of sovereignty or that of comity, then it seems to have overridden any obligation which Australia may have had in that regard. In our view, s 47A authorises this Court to take evidence on oath or affirmation from a person located in any other state, save where the law of that state prohibits or makes inconvenient the giving of evidence on oath or affirmation. In that case, the Court may dispense with the oath or affirmation. We see no justification for imposing upon the exercise of the discretion conferred by s 47A, a requirement that the other state consent to the taking of evidence in that way.

38    There is nothing before me to show that it would be unlawful in the PRC for witnesses giving evidence there to swear an oath or make an affirmation. It is of course true that in the event of a witness not speaking the truth, it will be practically impossible to prosecute them for perjury or contempt because of their absence from Australia. But the same difficulty would arise if they gave their evidence in Australia because it would be overwhelmingly likely that they would have left Australia after having given evidence before any proceeding for perjury or contempt could be brought.

39    In all the circumstances, the PRC approval issue is no obstacle to leave being granted.

The pandemic and delay

40    Second, the circumstances of the pandemic must be considered. They are such that if I do not allow the applicant’s witnesses to give evidence by way of AVL, there is no feasible alternative in the foreseeable future. At this stage it is simply unknown when circumstances may change such as to allow travel to Australia by witnesses who are resident in the PRC. It would appear that such travel is unlikely to be allowed, or even if allowed would probably not be advisable, until such time as there is a widely available vaccine against the virus. At this stage, no one knows when that will be, or even whether there will be a vaccine.

41    The result is that if the trial is put off on the basis that the applicant’s witnesses cannot give evidence by AVL, it is simply unknown when they may be able to give evidence in person and the trial may be indefinitely delayed. Of course, if I refuse leave now the applicant could reapply at some time in the future if it still looked like no trial would be able to be held in the foreseeable future. But that approach does not really solve anything; it merely defers the problem for future consideration.

42    It must also be considered that it is by no means certain that the trial will in any event proceed in circumstances where the judge, the lawyers and the witness are all in the courtroom together. Whilst this particular trial presently has the authorisation to be conducted in that way, most hearings in this Court are presently being conducted remotely such that the judge, the lawyers and the witnesses are all in separate locations. The circumstances of community transmission of the virus is such that it is not possible to predict what will happen between now and the trial date; it may be that the rest of the trial will also have to be conducted by AVL in any event.

43    I should say that it is accepted that the applicant’s witnesses who are in the PRC are critical to its case. Without them, or at least most of them, it cannot proceed.

44    It is an aphorism that justice delayed is justice denied. Needless to say, justice indefinitely delayed is justice definitely denied. See Brisbane South Regional Health Authority v Taylor [1996] HCA 25; 186 CLR 541 at 551 per McHugh J.

45    In the circumstances, it is a weighty factor in favour of leave being given for the applicant’s Chinese witnesses to give evidence by way of AVL that there is no practical alternative and the trial will inevitably be delayed for a long period of time.

Cross-examination by AVL

46    Third, there are considerations concerning the practicalities and efficacy of cross-examination by AVL. Those are all the more important in circumstances where, as in this case, there are allegations of fraud such that the cross-examination is likely to go to credit, interpretation will be required and the cross-examination will involve many documents.

47    There was a time when cross-examination by AVL was regarded as being significantly less effective than cross-examination in person with the consequence that where questions of fraud and credit were at issue leave to give evidence by AVL would be difficult to come by. Dicta of Buchanan J in Campaign Master (UK) Ltd v Forty Two International Pty Ltd (No 3) [2009] FCA 1306; 181 FCR 152 are typically cited. Factors weighing against leave being granted were identified to include (at [78]) “the [troubling] prospect (or possibility) that the cross-examination of an important witness might be rendered less effective by the limitations of video link technology or the absence of the witness from the courtroom” and the benefits of “the requirement to give evidence on oath or affirmation in the (generally) solemn atmosphere of a courtroom in the presence of a judge, and to answer questions in cross-examination in the presence also of cross-examining counsel”. Those benefits were identified as (1) enhancing the prospect that the witness will remain conscious of the nature and solemnity of the occasion and of their obligations, (2) affording the cross-examiner some reassurance that the gravity and immediacy of the moment, and of the supervising presence of the judge, are not lost on the witness and the cross-examination is not thereby rendered any less effective, to the possible prejudice of the cross-examining party, and (3) providing the court with a more satisfactory environment in which to assess the nature, quality and reliability of responses by witnesses, both to questions and to the overall situation presented by the necessity to give evidence in court.

48    In my view, and experience, whilst there is certainly something to be said for all of the benefits identified by his Honour, times have significantly moved on in the last 10 years. The technology has got better, and judges and counsel have become far more accustomed to cross-examination by AVL. Particularly in the last four or so months when almost all of the work of this and other courts has necessarily been done remotely because of restrictions associated with the pandemic, the learning curve has been steep and the experience intense.

49    My experience of having now conducted several remote (but no less real) hearings with rigorous cross-examination, including as to credit and on allegations of fraud, on the Microsoft Teams platform is similar to that of Perram J as expressed in Capic v Ford Motor Company of Australia Limited (Adjournment) [2020] FCA 486 at [19]-[20], viz. the judge stares at the witness from about one metre away such that their perception of the witness’s facial expressions is much greater than it is in court. To that I can add that cross-examining counsel has that similar benefit. My experience has been that well-prepared cross-examination can be as, or just about as, effective in a virtual setting. My impression has been that counsel, even those who were initially sceptical, have shared that experience.

50    See also Australian Securities and Investments Commission v GetSwift Limited [2020] FCA 504 at [33] per Lee J, Tetley v Goldmate Group Pty Ltd [2020] FCA 913 at [16] per Bromwich J, Porter v Mulcahy & Co Accounting Services Pty Ltd (Ruling) [2020] VSC 430 at [26] per Delany J and Ascot Vale Self Storage Centre Pty Ltd v Nom De Plume Nominees Pty Ltd [2020] VSC 242 at [19] per McDonald J. I acknowledge that there are different views on this question, the experience of some judges being less positive, e.g. Rooney v AGL Energy Ltd (No 2) [2020] FCA 942 at [17]-[19] per Snaden J. See also other cases where AVL leave has been refused: Roberts-Smith v Fairfax Media Publications Pty Limited (No 4) [2020] FCA 614 at [22] per Besanko J and Wilson at [29] and [37]-[39] per Jackson J.

51    I accept that there can be a tendency amongst some participants to regard the occasion of a remotely conducted trial, or part of it, with less solemnity and formality than it deserves, and that that is undesirable and undermining of effective cross-examination. However, my experience is that a judge is able to quickly remind the relevant participants of the solemnity and formality of the occasion and to re-establish the appropriate atmosphere.

52    The applicant accepted that it will not be able to later make the submission that any difference in the way in which the parties’ witnesses gave their evidence (i.e. the one by AVL and the others in person) was prejudicial to the applicant.

53    I am also not concerned about the volume of documents and cross-examination on documents. The parties may have to be a little better prepared to ensure that court books are prepared well in advance and are available in different locations with common pagination and the like, and cross-examining counsel may be constrained not to leave preparation of cross-examination until the night before the witness gives evidence as sometimes apparently occurs. That is because it may be necessary to ensure that any documents that are going to be cross-examined on are made available in the remote location in advance. File-sharing facilities such as Dropbox, Google Drive and OneDrive have made the task of “handing up” documents or showing documents to a witness in a remote setting quite manageable.

54    The applicant accepted the respondents’ condition in relation the documents, namely that an electronic copy of the court book be made available on a separate screen for viewing by the witness.

Interpretation

55    Fourth, there are considerations concerning the interpretation of the questions addressed to the witnesses and their answers, and of documents to be cross-examined on. Although the application for approval in the PRC made reference to the applicant’s Chinese lawyer being the interpreter in the meeting room in Shanghai, the applicant accepted that that was clearly inappropriate and that an independent appropriately qualified interpreter would interpret between the relevant Chinese language (presumably Mandarin) and English in the courtroom in the presence of the trial judge in Australia.

56    I respectfully agree with what was said by Robb J in Haiye Developments Pty Ltd v The Commercial Business Centre Pty Ltd [2020] NSWSC 732 at [60] about the difficulty of a judge making an assessment of a witness’s credibility when the witness is giving evidence through an interpreter. However, in my experience such difficulties are not made significantly worse by the fact of the evidence being given by AVL.

57    The respondents also raised problems with regard to the need to have documents that will be cross-examined on interpreted in advance. But those problems arise in any event, whether the witness is present in court or giving evidence remotely. The parties will need to solve them regardless.

Integrity of evidence

58    Fifth, there are considerations of the integrity of the evidence. In that regard I have in mind the risk that a witness giving evidence by AVL from a remote location is prompted in their answers by someone in their presence but off screen. The applicant has accepted the respondents’ proposed conditions in this regard, namely that:

(1)    the remote witness be alone in the room in which that person’s evidence is given, and out of earshot of any other witness;

(2)    the evidence of the witness not be broadcast or made available to any other witness before the latter witness has completed their evidence; and

(3)    the solicitor for the applicant take all necessary steps to ensure that the above conditions are adhered to at all times.

59    Experience has shown that it is not practical for a remote witness to be alone in the relevant room. That is because they may face difficulties with the technology that they are not able to solve, or they may need assistance in locating a document that is being shown to them, or they may have to turn their sound off while discussion takes place between the judge and counsel in their “absence”, for example in the context of an objection to a question. It will therefore be necessary for a technical support person to be present with the witness. It is advisable that a lawyer, preferably one admitted in Australia as that offers better possibilities of recourse in the event of a breach, is present with the witness to ensure the integrity of the process.

60    The applicant, of course, made it clear that the respondents are welcome to instruct someone to be present with the witness at Baker McKenzie in Shanghai, but it would appear that cost and practicalities may mean that that will not happen.

61    In any event, I am satisfied with the applicant’s local solicitor’s assurance that a lawyer under his instructions in the Shanghai office of Baker McKenzie will be present to ensure the integrity of the process. Needless to say, if during the course of the process any problem arises with regard to these issues then leave would be liable to be withdrawn.

Conclusion on leave for AVL evidence

62    In my assessment, the interests of the administration of justice, including, in particular, doing justice between the parties, warrants the granting of the leave sought by the applicant to adduce the evidence of witnesses in the PRC by AVL. I am particularly concerned that to refuse to give leave will result in intolerable delay and uncertainty, and I am satisfied that there are no problems here with regard to the legality in the PRC of the proposed witnesses giving evidence there. I am also satisfied that there are no practical obstacles, or obstacles to ensuring the integrity of the process, such as to render the process unjust or unfair.

Notice of the sale of Kia Ora Farm

The evidence

63    Mr Salgo’s evidence includes the following that is relevant to the “notice order” that the applicant seeks.

64    Kia Ora Farm was purchased by the first respondent in September 2016 for $10 million (apparently for the purpose of leasing it to the applicant). The first respondent has share capital of $20.

65    By letter dated 1 May 2020, Mr Salgo said to Mr Webeck that on his understanding the farm is the most substantial asset of the first respondent and that it is publicly advertised for sale. Mr Salgo expressed the concern that the first respondent’s assets should not be dealt with, by encumbrance, transfer, dissipation or otherwise, in a manner calculated to defeat the applicant’s claim which could be as much as about $7 million. Mr Salgo requested Mr Webeck to inform him (1) whether a contract for sale had been entered into for the sale of the farm, (2) if so, the price and anticipated net proceeds to the first respondent and the anticipated date of completion, and (3) the proposed utilisation of the net proceeds of sale.

66    By letter dated 1 May 2020, Mr Webeck answered Mr Salgo’s three questions as (1) no, (2) not applicable, and (3) not applicable.

67    Mr Salgo replied by email on 8 May 2020 detailing evidence that on 31 January 2020 it had been publicly stated by the sales agent that the farm was “under contract” and asking for an explanation.

68    On 8 May 2020, Mr Webeck replied saying that his firm is acting on the proposed property transaction and that he would get further instructions and then respond more fully.

69    Mr Salgo wrote again by letter dated 6 July 2020 which recorded that Mr Webeck had advised that a licence had been entered into with regard to the sale of the farm which commenced on 4 May 2020 and was to expire on 3 July 2020. Mr Salgo again expressed the applicant’s concern about the possibility of the first respondent’s asset being dealt with in such a manner as to defeat the applicant’s claim. Mr Salgo requested (1) an update as to the circumstances of the sale, (2) an undertaking from the first respondent that the proceeds of any sale, encumbrance, transfer or other disposition of all or part of the farm will not be paid out, dissipated, removed from Australia, disposed of, dealt with or otherwise diminished in value below $7 million without first giving the applicant 21 days’ notice in writing, and (3) an undertaking from the second respondent that he will not cause, or participate in, the first respondent’s breaching such an undertaking.

70    Mr Webeck replied by letter dated 9 July 2020 saying that (1) the licence had been extended to 4 September 2020 and that as at the date of the letter there had been no exchange of contract for sale, (2) if contracts are exchanged the essential terms would involve payment of approximately $11 million in instalments over a period of 36 months with $1 million going to discharge of the mortgage, and (3) he had recommended to the respondents to give an undertaking to the applicant that the proceeds of any sale, encumbrance, transfer or other disposition of all or part of the farm will not be removed from Australia without giving the applicant at least 21 days’ notice in writing of any such proposed removal from Australia.

71    Mr Salgo replied by letter dated 17 July 2020 stating that the undertaking is insufficient to protect the applicant’s interest that the first respondent’s assets should not be dealt with in a manner calculated to defeat the applicant’s claim. That is because, it was said, the undertaking would leave the first respondent at liberty to transfer, gift, or otherwise deal with its assets so as to potentially defeat any judgment the applicant could obtain by any means at all, except removal from Australia. It was also said that an undertaking to the applicant alone was insufficient, and that the undertaking should also be to the Court.

72    Mr Webeck replied by letter dated 21 July 2020 confirming that the proffered undertaking is given also by the second respondent, but otherwise declining to alter the undertaking.

73    The respondents did not adduce any evidence on this issue.

The submissions

74    The applicant submits that the notice order that it seeks will allow it time to consider its position in the event that a sale, or other disposal, of the farm materialises, and to make any application for further relief including a freezing order.

75    It submits that it will be important to the Court’s consideration of any application for a freezing order that the applicant alleges fraud on the part of the respondents, and refers to Patterson v BTR Engineering Australia Ltd (1989) 18 NSWLR 319 at 321-322; RRG Nominees Pty Ltd v Visible Temporary Fencing Australia Pty Ltd [2017] FCA 1352 at [12]; Alka Developments Pty Ltd v Lemery Holdings Pty Ltd [2005] NSWSC 1335 at [24]-[25]; In the matter of Black Eagle Media Pty Ltd [2014] NSWSC 1778 at [7]-[10].

76    The applicant submits that the notice order will not cause any prejudice to the first respondent, and notes that the undertaking that has been proffered is offered only to the applicant and not to the Court and is narrower than what the applicant seeks because it is limited to removing the proceeds of a sale from Australia. In response to the latter point, senior counsel for the respondents proffered an undertaking to the applicant that the respondents would provide 21 days’ notice of the settlement of any sale or other disposition of the farm.

77    The respondents submit that what the applicant seeks is in substance a freezing order. They point out that the interlocutory proceeding refers to rr 7.32 and 7.35 of the Federal Court Rules 2011 (Cth) which are rules dealing expressly with freezing orders. They also say that the undertakings that they have proffered give the applicant adequate protection.

78    The respondents also point to the fact that they have a cross-claim against the applicant in respect of which they have no security or protection. They say that the prejudice that they will face is that the order that the applicant seeks prevents any use of the funds at all, even on a literal reading the prevention of any mortgage being paid out.

79    The respondents submit that there is a complete absence of evidence that the respondents would dissipate their assets or remove them from the jurisdiction. They also submit that a danger of dissipation cannot be manufactured by the sending of correspondence that makes assertions or demands undertakings.

Consideration

80    The applicant has not identified any basis for the Court to make the notice order that it seeks other than under the long recognised inherent jurisdiction of the Court to make a freezing or similar order: Cardile v LED Builders Pty Ltd [1999] HCA 18; 198 CLR 380 at [40]-[43] per Gaudron, McHugh, Gummow and Callinan JJ. In that respect, the applicant needs to establish a danger that, by reason of the respondents’ absconding, or of assets being removed out of the jurisdiction or disposed of within the jurisdiction or otherwise dealt with in some fashion, the applicant, if it succeeds, will not be able to have its judgment satisfied: Patterson at 321-322 per Gleeson CJ.

81    Further, the assertions that the respondents are likely to put any asset beyond the applicant’s grasp and are unlikely to honour any judgment are clearly not enough by themselves; something more is required: Patterson at 323 quoting Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft and Co KG (The Niedersachsen) [1983] 1 WLR 1412 at 1419.

82    I accept that it is possible that the respondents will dissipate assets of the first respondent and in that way defeat a judgment, and that the fact of allegations of fraud being made is relevant albeit in a limited way because at this stage I do not have any evidence in support of such allegations. What is lacking is any basis upon which I might conclude that there is some level of likelihood or risk that there is a danger that the respondents will dissipate the assets of the first respondent without first giving notice to the applicant as they have promised. There is no evidence or cogent submission which provides a basis to give appreciable weight to the applicant’s concerns. In that regard, it is relevant that the respondents’ solicitors, HWL Ebsworth Lawyers, are acting on the proposed property transaction. They would not knowingly be party to a breach of the respondents’ undertaking.

83    The solicitor’s correspondence on behalf of the respondents explained the position with respect to the sale of the farm, and the respondents have been prepared to give an undertaking that they will give 21 days’ notice prior to any settlement of a contract for sale or other disposition of the farm.

84    It should also be borne in mind that the trial of this matter is now only about two months away, and on the current prospective contract for the sale of the farm the price will be paid in instalments over several years. That means that on current information there is no pressing need for the notice order.

85    In those circumstances, I am not satisfied that it is justified, at least not at this stage, to make the notice order that the applicant seeks.

Costs

86    The parties did not make submissions on costs. Prima facie, I consider that the costs of this application should be costs in the cause. That is because both sides of the case were to some extent successful, and correspondingly unsuccessful, and to some extent the application for AVL leave was in any event necessary, as were the investigations and discussions on its practicalities. However, I will give the parties an opportunity to apply for that costs order to be reconsidered by filing short written submissions.

Associate:

Dated:    11 August 2020