Federal Court of Australia

Fine China Capital Investment Limited v Qi (No 2) [2023] FCA 1059

ORDERS

THE COURT ORDERS THAT:

Freezing order

1.    Upon the usual undertaking as to damages and upon the undertakings given by the applicant as set out in Schedule A to Annexure A to the orders made on 24 July 2023, subject to further order, the freezing order made by paragraph 2 of those orders (with the figure of AUD$23,870,000.00 in paragraph 6 changed to AUD$19,510,000.00) be extended to the determination of this proceeding.

2.    There be liberty to apply.

3.    Costs be reserved.

Case management

4.    The applicant have leave to file and serve forthwith an amended originating application in the form provided to the Court on 22 August 2023.

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

REASONS FOR JUDGMENT

MOSHINSKY J:

Introduction

1    The issue to be determined is whether or not a freezing order against the respondent, Tao Qi (Mr Qi), should be continued. A freezing order was made on the application of the applicant, Fine China Capital Investment Limited (Fine China), a company incorporated in Hong Kong, on 24 July 2023: Fine China Capital Investment Limited v Qi [2023] FCA 861. That freezing order was made following an ex parte hearing.

2    On 28 July 2023, the freezing order was extended to 18 August 2023 to provide time for the parties to file material before the matter came back for a hearing between the parties. At the hearing on 18 August 2023, it became apparent that more time was needed for the parties to file material in response to recently filed material. Accordingly, orders were made for the freezing order to be extended to 28 August 2023, and Fine China’s application for a continuation of the freezing order was adjourned to 11.00 am on 28 August 2023, which was yesterday. The hearing took place yesterday. At the conclusion of the hearing, I indicated that I would give judgment the next day, and the freezing order was extended until today.

3    Although a freezing order has already been made, the hearing yesterday was the first occasion on which the matter was argued between the parties. I therefore approach afresh the question whether a freezing order should be made. The burden is on Fine China, as the applicant for the freezing order, to demonstrate that a freezing order should be made.

4    The parties have filed a large body of affidavit material, and some documentary exhibits.

5    Fine China relies on:

(a)    affidavits of Ms Luyao Mei, the sole director and shareholder of Fine China, dated 21 July 2023, 15 August 2023 and 25 August 2023; although Ms Mei has only been the sole director and shareholder for a short period of time (since 7 July 2023), before that date she was the Chief Financial Officer of Fine China (for a period of approximately three years); she has worked for Fine China for approximately nine years;

(b)    affidavits of Mr Jack Ryan, a solicitor at AJH Lawyers, the solicitors acting for Fine China, dated 24 July 2023, 27 July 2023 and 16 August 2023;

(c)    an affidavit of Mr Hou Bowen, the Vice-President of Sun Create Richly Holdings (Asia) Limited (Sun Asia), a company incorporated in Hong Kong, dated 15 August 2023; and

(d)    an affidavit of Mr John Ganas, a forensic scientist, dated 28 August 2023; Mr Ganas’s affidavit annexes an expert report on signatures.

6    In addition, Fine China relies on the following documentary exhibits:

(a)    a facsimile from the High Court of Hong Kong dated 17 August 2023;

(b)    a bundle of documents produced by the Commonwealth Bank of Australia (CBA) in response to a subpoena; and

(c)    a bundle of documents produced by the Australia and New Zealand Banking Group Limited (ANZ) in response to a subpoena.

7    Mr Qi relies on the following affidavits:

(a)    affidavit of Mr John Richards, a solicitor and the principal of Carswell & Company Solicitors, the solicitors acting for Mr Qi, dated 9 August 2023, 17 August 2023 and 24 August 2023;

(b)    an affidavit of Mr Jinpo Ding dated 9 August 2023; and

(c)    an affidavit of Mr Ricky C.H. To, a legal assistant, dated 9 August 2023; Mr To interpreted the affidavit of Mr Ding to him for the purposes of preparation of that affidavit.

Overview of the proceeding

8    Fine China’s claim is set out in its amended statement of claim dated 22 August 2023.

9    Fine China alleges that, from about 2017, Mr Qi was engaged by Fine China to act as its agent in establishing and managing its investments in Australia, primarily through Australian companies to be established on Fine China’s behalf. It is alleged that, as an agent, Mr Qi owed fiduciary duties to Fine China.

10    Fine China alleges that, in January 2017, on behalf of Fine China, Mr Qi registered CSJH (Australia) Pty Ltd (CSJH), an Australian company, for the purpose of assisting Fine China to invest in Australia. It is alleged that, in March 2017, Mr Qi was appointed as director of CSJH. It is alleged that Mr Qi was the sole shareholder of CSJH and held the shares in his capacity as agent for Fine China.

11    Fine China alleges that, in February 2017, on behalf of Fine China, Mr Qi registered Sunshine Scenery (Australia) Pty Ltd (Sunshine Scenery), an Australian company, for the purpose of assisting Fine China to purchase, own and develop real property in Australia together with CSJH. It is alleged that, in February 2017, Mr Qi was appointed as director of Sunshine Scenery. It is alleged that Mr Qi was the majority shareholder of Sunshine Scenery in his capacity as agent for Fine China.

12    Fine China alleges that in March 2021 two trust deeds were entered into: one in relation to CSJH (the CSJH Trust Deed); the other in relation to Sunshine Scenery (the Sunshine Scenery Trust Deed). It is alleged that Mr Qi was appointed as trustee of each trust, and that Fine China was the sole beneficiary of each trust It is alleged that each trust deed permitted the trustee to hold certain “target assets”, namely:

(a)    in relation to the CSJH Trust Deed, all of the shares in CSJH; and

(b)    in relation to the Sunshine Scenery Trust Deed, 137,500 shares (out of a total of 250,000 shares) in Sunshine Scenery.

13    Other terms of the trust deeds are pleaded in the amended statement of claim. It is alleged that Mr Qi, as trustee of the trusts, owed fiduciary duties to Fine China.

14    It is alleged that, on or about 8 May 2022, Mr Qi, without authority, purported to enter into share purchase agreements to sell the shares in CSJH. It is alleged that Mr Qi received various sums of money in his personal bank account at Bankwest as consideration for the agreements.

15    It is alleged that, on 27 February 2023, Mr Qi, without authority, filed a form to deregister CSJH with the Australian Securities and Investments Commission (ASIC). It is alleged that CSJH was deregistered on 7 May 2023. It is also alleged that, on 5 August 2022, Mr Qi, without authority, transferred $19,747,000 out of CSJH’s bank account at ANZ to an unknown recipient or unknown recipients. It appears to be alleged that Mr Qi has misappropriated these funds.

16    It is alleged that Mr Qi has breached his duties as an agent, as a director, and as a trustee.

17    Fine China seeks orders for the reinstatement of CSJH.

18    Fine China seeks orders for Mr Qi’s removal as a director of Sunshine Scenery, and for the transfer of the shares in Sunshine Scenery in Mr Qi’s name to Fine China.

Applicable principles

19    The Court has the power to make a freezing order under s 23 of the Federal Court of Australia Act 1976 (Cth) and Div 7.4 of the Federal Court Rules 2011. Under r 7.33, the Court may make an ancillary order to a freezing order or a prospective freezing order, including an order made for the purpose of eliciting information relating to assets relevant to the freezing order or prospective freezing order.

20    The principles relating to freezing orders have been considered recently in: Spotlight Pty Ltd v Mehta [2019] FCA 1796 (Spotlight v Mehta) at [9]-[12] per Anderson J; Royal Express Pty Ltd (Receivers and Managers Appointed) (Administrator Appointed) v Huang, in the matter of Royal Express Pty Ltd [2021] FCA 585 at [3]-[4] per O’Bryan J; and Hurst, in the matter of Lloyds Curry Shop Pty Ltd (in liq) v Prasad [2021] FCA 1562 at [22]-[28] per Cheeseman J. The cases indicate that the issues to be considered on such an application are:

(a)    whether the plaintiff or applicant has a good arguable case;

(b)    whether there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because the assets of the prospective judgment debtor are disposed of, dealt with or diminished in value (assuming the relevant aspect of r 7.35(4)(b) is sub-paragraph (ii)); and

(c)    the exercise of discretion.

21    In Spotlight v Mehta, Anderson J quoted the following passage from the judgment of Wigney J in Basi v Namitha Nakul Pty Ltd [2019] FCA 743 at [7]-[9]:

7    The purpose of a freezing order is to prevent an abuse or a frustration of the Court’s process by depriving an applicant of the fruits of any judgment obtained in the action: Jackson v Sterling Industries Ltd (1987) 162 CLR 612 at 625. It is “no light matter” to freeze a party’s assets and there is, accordingly, a need for the Court to exercise caution: Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 324F. A freezing order is a “drastic remedy” which should not be lightly granted: Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at [51] citing Frigo v Culhari (unreported, NSW Court of Appeal 17 July 1998 at 10-11).

8    An applicant has a good arguable case if they have “a reasonably arguable case on legal as well as factual matters”: Cardile at [68]; Insolvency Guardian Melbourne Pty Ltd v Carlei (2016) 111 ACSR 236; [2016] FCA 72 at [18]. It has also been said that a “good arguable case” is one “which is more than barely capable of serious argument, and yet not necessarily one the judge considers would have better than a fifty per cent chance of success”: Curtis v NID Pty Ltd [2010] FCA 1072 at [6] citing Ninemia Maritime Corp v Trave Schiffahrtsgesselschaft mbH & Co KG (The Niedersachsen) [1983] Com LR 234 at 235 (affirmed on appeal: [1983] 1 WLR 1412); Deputy Commissioner of Taxation v Greenfield Electrical Services Pty Ltd (2016) 103 ATR 327; [2016] FCA 653 at [7].

9    Where a freezing order is sought on the basis of a danger of the dissipation of assets, it is not necessary for the Court to be satisfied that the risk of dissipation is more probable than not. Nor is it necessary for the applicant to adduce evidence of an intention on the part of the respondent to dissipate assets: Deputy Commissioner of Taxation v Hua Wang Bank Berhad (2010) 273 ALR 194; [2010] FCA 1014 at [8]-[10]; Deputy Commissioner of Taxation v Chemical Trustee Ltd (No 4) (2012) 90 ATR 711; [2012] FCA 1064 at [23]. The making of a freezing order involves a discretionary exercise of power. The Court retains a discretion to refuse relief even if the requirements in r 7.35 of the Rules are satisfied: Patterson at 321-322.

22    In relation to the issue of danger of dissipation of assets, the following principles are relevant:

(a)    it is not necessary for the Court to be satisfied that the risk of dissipation is more probable than not;

(b)    the risk of dissipation must be demonstrated by evidence: see Bayley & Associates Pty Ltd v DBR Australia Pty Ltd [2012] FCA 746 at [34] per Foster J, citing Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 (Patterson) at 321-322 per Gleeson CJ; and

(c)    in some cases, the risk of dissipation of assets to avoid a judgment will be evident from the applicant’s or plaintiff’s strong prima facie case of the defendant’s having fraudulently misappropriated assets or of serious dishonesty: see KTC v Singh [2018] NSWSC 1510 at [8] per White J, citing Patterson at 325-326 per Gleeson CJ.

23    It is common ground that, in circumstances where the Court is confronted with conflicting bodies of evidence, the following principles apply (based on Parbery v QNI Metals Pty Ltd [2018] QSC 107; 358 ALR 88 at [71]-[75] per Bond J):

(a)    in assessing whether the applicant has discharged its burden, the Court must exercise a degree of caution;

(b)    in general, this is not an occasion to determine contested questions of fact and conflicts in affidavit evidence;

(c)    for this reason, the use which can be made of any evidence adduced by the respondent is limited;

(d)    the evidence adduced by the respondent may have explanatory force, explaining away what might otherwise appear to be a good arguable case; or it may, when juxtaposed against the applicant’s evidence, show that there is in reality no good arguable case;

(e)    the Court is not bound to accept statements in the affidavits simply because they were not the subject of cross-examination, especially where they are equivocal, lacking in precision, inconsistent with undisputed contemporaneous documents or inherently improbable; and

(f)    the Court is:

(i)    to take into account the apparent strength and weakness of the respective cases in order to decide whether the applicant’s claim is sufficiently strong to warrant the (drastic) remedy sought; and

(ii)    in doing so, to make a realistic assessment of the merits.

Consideration

24    The affidavit material is voluminous and relates to a number of matters that are not directly relevant for present purposes, including proceedings in other jurisdictions and claims against Mr Qi in relation to other companies. I will focus on the evidence that is directly relevant to Fine China’s claims in this proceeding.

25    There is a clear conflict in the evidence filed by the parties. On the one hand, Ms Mei provides evidence that supports the allegations in the amended statement of claim. On the other hand, Mr Richards gives evidence (on an “information and belief” basis from Mr Qi) that denies that Mr Qi acted as agent or trustee of Fine China. I will now refer to the evidence in a little more detail.

26    On behalf of Fine China, Ms Mei gives evidence that:

(a)    Mr Qi was an agent of Fine China, responsible for managing its investments in Australia (Mei affidavit dated 15 August 2023, [7]);

(b)    on 24 March 2021, the CSJH Trust Deed was entered into, with Mr Qi as trustee and Fine China as beneficiary; a copy is annexure “LM-9” to Ms Mei’s affidavit dated 21 July 2023 (Mei affidavit dated 21 July 2023, [20]; and Mei affidavit dated 15 August 2023, [38]);

(c)    Mr Qi purported to sell the shares in CSJH and received the sum of $4,360,000 (Mei affidavit dated 21 July 2023, [24]);

(d)    on 27 February 2023, Mr Qi, without authority, applied for voluntary deregistration of CSJH (Mei affidavit dated 21 July 2023, [28]; Mei affidavit dated 15 August 2023, [61]);

(e)    on 7 May 2023, Mr Qi, without authority, deregistered CSJH (Mei affidavit dated 21 July 2023, [29]; Mei affidavit dated 15 August 2023, [61]);

(f)    Mr Qi has not accounted to Fine China for funds in the sum of $19,510,000 deposited in CSJH’s ANZ bank account, or funds in the sum of $4,360,000 deposited in Mr Qi’s account with Bankwest (Mei affidavit dated 15 August 2023, [11]);

(g)    on the instructions of Fine China, Mr Qi arranged for the incorporation of Sunshine Scenery (Mei affidavit dated 15 August 203, [17]);

(h)    as with CSJH, the purpose of Sunshine Scenery was to be a corporate vehicle established on behalf of Fine China for the purpose of facilitating Fine China’s investments in Australia (Mei affidavit dated 15 August 2023, [20]); and

(i)    on 24 March 2021, the Sunshine Scenery Trust Deed was entered into, with Mr Qi as trustee and Fine China as beneficiary; a copy is annexure “LM-4” to Ms Mei’s affidavit dated 15 August 2023 (Mei affidavit dated 15 August 2023, [34], [38]).

27    In response, the evidence of Mr Qi, conveyed through Mr Richards’s affidavits, is as follows:

(a)    Mr Qi was never engaged by Fine China to act as its agent in establishing and managing investments in Australia (Richards affidavit dated 9 August 2023, [4], [6]);

(b)    Mr Qi has never had any involvement in any way with Fine China (Richards affidavit dated 9 August 2023, [6]);

(c)    Mr Qi never entered into a trust deed with Fine China (Richards affidavit dated 9 August 2023, [6]);

(d)    Mr Qi never entered into any share sale agreement in respect of shares in CSJH (Richards affidavit dated 9 August 2023, [6]);

(e)    Mr Qi does not recognise the signature on the execution block of the CSJH Trust Deed as belonging to him (Richards affidavit dated 9 August 2023, [6]);

(f)    Mr Qi established CSJH in 2017 and held all the shares in the company, but “none of the shares issued was paid as he intended to use CSJH as an investment holding company in Australia” (Richards affidavit dated 9 August 2023, [16]);

(g)    CSJH did not implement any of its investment projects; the company had no assets or equity; Mr Qi therefore caused the company to be deregistered (Richards affidavit dated 9 August 2023, [17]);

(h)    Mr Qi transferred $19,747,000 from the ANZ bank account of CSJH to a bank account owned by MAWF (this appears to be a reference to MAWF Australia Pty Ltd (MAWF)) for use in other business pursuits and removed all funds from CSJH’s account on 13 April 2023 (Richards affidavit dated 24 August 2023, [44]);

(i)    Mr Qi, together with two other people, incorporated Sunshine Scenery; Mr Qi holds 55% of the shares in the company and is a director of it (Richards affidavit dated 9 August 2023, [11]);

(j)    Sunshine Scenery purchased a farming property at Muldoolun, Queensland (Richards affidavit dated 9 August 2023, [12]); and

(k)    Mr Qi never entered into the Sunshine Scenery Trust Deed (Richards affidavit dated 24 August 2023, [41]).

28    As indicated above, copies of the documents that Fine China contends are trust deeds relating to CSJH and Sunshine Scenery are in evidence as annexures to Ms Mei’s affidavits. In addition to the evidence referred to above, Fine China relies on the evidence of Mr Bowen that he witnessed Mr Qi sign the trust deeds (Bowen affidavit, [27], [40]). Mr Bowen also gives evidence that he is familiar with Mr Qi’s signature and the signatures on the trust deeds are the same as Mr Qi’s signature on other documents that Mr Bowen observed Mr Qi signing (Bowen affidavit, [7], [41]).

29    In response, Mr Richards gives evidence (on an “information and belief” basis from Mr Yu Wong) refuting an aspect of Mr Bowen’s evidence, namely that the trust deeds were prepared by Mr Wong (Richards affidavit dated 17 August 2023, [4]-[7]).

30    In connection with the trust deeds, Fine China also relies on the analysis of the signatures carried out by Mr Ganas. I note that Mr Ganas’s analysis was based on copies, rather than originals, and that his conclusions are expressed in qualified terms.

31    Having regard to the evidence summarised above, I consider that Fine China has established a good arguable case that Mr Qi acted as trustee for Fine China in relation to CSJH, and therefore that CSJH has a claim for the sum of $19,510,000 withdrawn from CSJH’s bank account before the account was closed. I note that, while there is a dispute about authenticity, Fine China has annexed a copy of the CSJH Trust Deed and has filed affidavit evidence of Mr Bowen stating that he witnessed Mr Qi signing the trust deed. I consider it appropriate to proceed, for present purposes, on the basis that the CSJH Trust Deed is genuine. There does not seem to be any issue that Mr Qi did in fact withdraw approximately $19.5 million from CSJH’s bank account – that is accepted in the Richards affidavit dated 24 August 2023, at [44(f)].

32    Insofar as Fine China claims other amounts on the basis that they were received by Mr Qi as consideration for the sale of shares in CSJH (namely, an amount of $1,720,000 referred to in [20] of the amended statement of claim and $2,640,000 referred to in [21] of the amended statement of claim, making a total of $4,360,000), I am not satisfied that Fine China has established a good arguable case that it is entitled to these amounts. The evidence as a whole suggests that the shares in CSJH were not actually transferred to any purchaser; rather, CSJH was deregistered. In these circumstances, while the purchasers may have a claim to recover the consideration they paid, it is not established that Fine China has a good arguable case to recover the consideration that Mr Qi received.

33    Mr Qi contends that the evidence relating to his alleged agency should be given no weight as it comprises bare assertions and hearsay (without identifying the source of the information). It is unnecessary to resolve this point, because it is sufficient for present purposes to have regard to Fine China’s claim against Mr Qi as trustee.

34    I consider that the evidence establishes a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because the assets of the prospective judgment debtor (Mr Qi) are disposed of, dealt with or diminished in value. In this case, the nature of the claim itself supports the proposition that there is a danger of dissipation of assets. If Fine China’s claims are correct, then Mr Qi has: deregistered CSJH without the authority of Fine China; arranged for the closure of CSJH’s ANZ bank account without the authority of Fine China; and arranged for the transfer of funds out of that bank account without the authority of Fine China. Further, Fine China has been unable to directly contact Mr Qi since December 2022 (Mei affidavit dated 15 August 2023, [82], [84]). It appears likely that Mr Qi is in Singapore. Mr Qi holds a passport from the Republic of Vanuatu and is able to travel internationally (Mei affidavit dated 15 August 2023, [80], [81]).

35    Having regard to the above, I consider it appropriate to continue the freezing order, but with the amount limited to $19,510,000 (rather than the amount appearing in the present freezing order, namely $23,870,000).

36    It is also necessary also to consider some exceptions sought by Mr Qi. Mr Qi submits that the exceptions in paragraph 10 of the freezing order should be expanded so as to expressly allow Mr Qi to pay expenses associated with the farming business run through Sunshine Scenery and expenses of MAWF. The evidence relating to this matter can be found in Mr Richards’s affidavit dated 9 August 2023 at [13]-[15], and his affidavit dated 24 August 2023 at [17] and [44].

37    It is unclear to me why these expenses (which are expenses of the companies, Sunshine Scenery and MAWF) need to be paid by Mr Qi. I consider that more evidence is required to demonstrate that the companies cannot themselves pay these expenses and to explain why Mr Qi needs to pay them. I will therefore not make this an exception at this stage, but it is open to Mr Qi to apply for a variation of the freezing order on the basis of additional evidence.

38    Mr Qi also submits that the security that has been provided for Fine China’s undertaking as to damages (presently, $80,000) should be increased to $250,000, relying on the evidence at [40] of the Richards affidavit dated 24 August 2023. However, this evidence does not explain with sufficient detail the possible or likely extent of any damage that may arise. Therefore, I do not consider there to be a sufficient basis to increase the amount of the security. Again, it is open to Mr Qi to apply for an increase in the amount of security on the basis of additional evidence.

Conclusion

39    For these reasons, I will continue the freezing order, but will change the amount referred to in paragraph 6 of the freezing order from $23,870,000 to $19,510,000.

Associate:

Dated:    7 September 2023