FEDERAL COURT OF AUSTRALIA

UFC Enterprise Morley Pty Ltd v UFC Enterprise Northbridge Pty Ltd [2024] FCA 1396

ORDERS

PENAL NOTICE

TO:     UFC Enterprise Northbridge Pty Ltd of 305 William Street, Northbridge WA 6003

This is an 'asset preservation order' made against you on 29 November 2024 by Justice Feutrill at a hearing without notice to you after the Court was given the undertakings set out in Schedule A to this order and after the Court read the affidavits listed in Schedule B to this order.

THE COURT ORDERS THAT:

Introduction

1.    (a)    The application for this order is made returnable immediately.

(b)    The time for service of the application, supporting affidavits and originating process is abridged and service is to be effected by 4:30pm (AWST) on 3 December 2024.

2.    Subject to the next paragraph, this order has effect up to and including 4:30pm (AWST) on 6 December 2024 (the Return Date). On the Return Date at 10:15am (AWST) there will be a further hearing in respect of this order.

3.    Anyone served with or notified of this order, including you, may apply to the Court at any time to vary or discharge this order or so much of it as affects the person served or notified.

4.    In this order:

(a)    'proposed applicant', if there is more than one proposed applicant, includes all the proposed applicants;

(b)    'you', where there is more than one of you, includes all of you and includes you if you are a corporation;

(c)    'third party' means a person other than you and the proposed applicant;

(d)    'unencumbered value' means value free of mortgages, charges, liens or other encumbrances.

5.    (a)    If you are ordered to do something, you must do it by yourself or through directors, officers, partners, employees, agents or others acting on your behalf or on your instructions.

(b)    If you are ordered not to do something, you must not do it yourself or through directors, officers, partners, employees, agents or others acting on your behalf or on your instructions or with your encouragement or in any other way.

Preservation of assets

6.    (a)    You must not remove from Australia or in any way dispose of, deal with or diminish the value of any of your assets in Australia (Australian assets) up to the unencumbered value of AUD $330,000 (the Relevant Amount).

(b)    If the unencumbered value of your Australian assets exceeds the Relevant Amount, you may remove any of those assets from Australia or dispose of or deal with them or diminish their value, so long as the total unencumbered value of your Australian assets still exceeds the Relevant Amount.

(c)    If the unencumbered value of your Australian assets is less than the Relevant Amount, and you have assets outside Australia (ex-Australian assets):

(i)    You must not dispose of, deal with or diminish the value of any of your Australian assets and ex-Australian assets up to the unencumbered value of your Australian and ex-Australian assets of the Relevant Amount; and

(ii)    You may dispose of, deal with or diminish the value of any of your ex-Australian assets, so long as the unencumbered value of your Australian assets and ex-Australian assets still exceeds the Relevant Amount.

7.    For the purposes of this order,

(a)    your assets include:

(i)    all your assets, whether or not they are in your name and whether they are solely or co-owned;

(ii)    any asset which you have the power, directly or indirectly, to dispose of or deal with as if it were your own (you are to be regarded as having such power if a third party holds or controls the asset in accordance with your direct or indirect instructions); and

(iii)    in particular any money in the account in the name of UFC Enterprise Northbridge Pty Ltd: BSB 036-004; Account Number 680351;

(b)    the value of your assets is the value of the interest you have individually in your assets.

EXCEPTIONS TO THIS ORDER

8.    This order does not prohibit you from:

(a)    paying $25,000 on your reasonable legal expenses;

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

(c)    in relation to matters not falling within (a) or (b), dealing with or disposing of any of your assets in discharging obligations bona fide and properly incurred under a contract entered into before this order was made, provided that before doing so you give the proposed applicant, if possible, at least two working days written notice of the particulars of the obligation.

9.    You and the proposed applicant may agree in writing that the exceptions in the preceding paragraph are to be varied. In that case the proposed applicant or you must as soon as practicable file with the Court and serve on the other a minute of a proposed consent order recording the variation signed by or on behalf of the proposed applicant and you, and the Court may order that the exceptions are varied accordingly.

10.    (a)    This order will cease to have effect if you:

(i)    pay the sum of $330,000 into Court; or

(ii)    pay that sum into a joint bank account in the name of your solicitor and the solicitor for the proposed applicant as agreed in writing between them; or

(iii)    provide security in that sum by a method agreed in writing with the proposed applicant to be held subject to the order of the Court.

(b)    Any such payment and any such security will not provide the proposed applicant with any priority over your other creditors in the event of your insolvency.

(c)    If this order ceases to have effect pursuant to (a), you must as soon as practicable file with the Court and serve on the proposed applicant notice of that fact.

COSTS

11.    The costs of this application are reserved to the Judge hearing the application on the Return Date.

PERSONS OTHER THAN THE PROPOSED APPLICANTS AND PROPOSED RESPONDENTS

12.    Set off by banks

This order does not prevent any bank from exercising any right of set off it has in respect of any facility which it gave you before it was notified of this order.

Bank withdrawals by the proposed respondents

No bank need inquire as to the application or proposed application of any money withdrawn by you if the withdrawal appears to be permitted by this order.

13.    Persons outside Australia

(a)    Except as provided in para (b) below, the terms of this order do not affect or concern anyone outside Australia.

(b)    The terms of this order will affect the following persons outside Australia:

(i)    you and your directors, officers, employees and agents (except banks and financial institutions);

(ii)    any person (including a bank or financial institution) who:

(A)    is subject to the jurisdiction of this Court; and

(B)    has been given written notice of this order, or has actual knowledge of the substance of the order and of its requirements; and

(C)    is able to prevent or impede acts or omissions outside Australia which constitute or assist in a disobedience breach of the terms of this order; and

(iii)    any other person (including a bank or financial institution), only to the extent that this order is declared enforceable by or is enforced by a court in a country or state that has jurisdiction over that person or over any of that person's assets.

14.    Assets located outside Australia

Nothing in this order shall, in respect of assets located outside Australia, prevent any third party from complying or acting in conformity with what it reasonably believes to be its bona fide and properly incurred legal obligations, whether contractual or pursuant to a court order or otherwise, under the law of the country or state in which those assets are situated or under the proper law of any contract between a third party and you, provided that in the case of any future order of a court of that country or state made on your or the third party's application, reasonable written notice of the making of the application is given to the proposed applicant.

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

SCHEDULE A

UNDERTAKINGS GIVEN TO THE COURT BY THE PROPOSED APPLICANTS

(1)    The proposed applicants undertake to submit to such order (if any) as the Court may consider to be just for the payment of compensation (to be assessed by the Court or as it may direct) to any person (whether or not a party) affected by the operation of the order.

(2)    As soon as practicable, the proposed applicants will file and serve upon the proposed respondents copies of:

(a)    this order;

(b)    the application for this order for hearing on the Return Date;

(c)    the following material in so far as it was relied on by the proposed applicants at the hearing when the order was made:

(i)    affidavits (or draft affidavits);

(ii)    exhibits capable of being copied;

(iii)    any written submission; and

(iv)    any other document that was provided to the Court.

(d)    a transcript, or, if none is available, a note, of any exclusively oral allegation of fact that was made and of any exclusively oral submission that was put, to the Court;

(e)    the originating process, or, if none was filed, any draft originating process produced to the Court.

(3)    As soon as practicable, the proposed applicants will cause anyone notified of this order to be given a copy of it.

(4)    The proposed applicants will pay the reasonable costs of anyone other than the proposed a which have been incurred as a result of this order, including the costs of finding out whether that person holds any of the proposed respondents’ assets.

(5)    If this order ceases to have effect the proposed applicants will promptly take all reasonable steps to inform in writing anyone who has been notified of this order, or whoever has reasonable grounds for supposing may act upon this order, that it has ceased to have effect.

(6)    The proposed applicants will not, without leave of the Court, use any information obtained as a result of this order for the purpose of any civil or criminal proceedings, either in or outside Australia, other than this proceeding.

(7)    The proposed applicants 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 proposed respondents or the proposed respondents’ assets.

(8)    One or all proposed applicants will:

(a)    if ordered, on or before a date to be determined by the Court cause an irrevocable undertaking to pay in the sum of $25,000 to be issued by a bank with a place of business within Australia, in respect of any order the court may make pursuant to undertaking (1) above; and

(b)    immediately upon issue of the irrevocable undertaking, cause a copy of it to be served on the respondents.

SCHEDULE B

AFFIDAVITS RELIED ON

NAME AND ADDRESS OF PROPOSED APPLICANTS’ LEGAL REPRESENTATIVES

The proposed applicants’ legal representatives are:

HHG Legal Group

Cloisters Square

863 Hay St

PERTH WA 6000

Ref: RHP/AH: 117316

Contact: 9211 2653 (Riaan Piek/Adam Hughes)

Email: riaan.piek@hhg.com.au; adam.hughes@hhg.com.au

ORDERS

PENAL NOTICE

TO:     Yu LU of 69 Doryanthes Avenue PIARA WATERS WA 6112

    UFC Enterprise Hillarys of Shop 101, 28 Southside Drive, Hillarys WA 6025

This is a 'freezing order' made against you on 29 November 2024 by Justice Feutrill at a hearing without notice to you after the Court was given the undertakings set out in Schedule A to this order and after the Court read the affidavits listed in Schedule B to this order.

THE COURT ORDERS THAT:

Introduction

1.    (a)    The application for this order is made returnable immediately.

(b)    The time for service of the application, supporting affidavits and originating process is abridged and service is to be effected by 4:30pm (AWST) on 3 December 2024.

2.    Subject to the next paragraph, this order has effect up to and including 4:30pm (AWST) on 6 December 2024 (the Return Date). On the Return Date at 10:15am (AWST) there will be a further hearing in respect of this order.

3.    Anyone served with or notified of this order, including you, may apply to the Court at any time to vary or discharge this order or so much of it as affects the person served or notified.

4.    In this order:

(a)    'proposed applicant', if there is more than one proposed applicant, includes all the proposed applicants;

(b)    'you', where there is more than one of you, includes all of you and includes you if you are a corporation;

(c)    'third party' means a person other than you and the proposed applicant;

(d)    'unencumbered value' means value free of mortgages, charges, liens or other encumbrances.

5.    (a)    If you are ordered to do something, you must do it by yourself or through directors, officers, partners, employees, agents or others acting on your behalf or on your instructions.

(b)    If you are ordered not to do something, you must not do it yourself or through directors, officers, partners, employees, agents or others acting on your behalf or on your instructions or with your encouragement or in any other way.

Freezing of assets

6.    (a)    You must not remove from Australia or in any way dispose of, deal with or diminish the value of any of your assets in Australia (Australian assets) up to the unencumbered value of AUD $200,000 (the Relevant Amount).

(b)    If the unencumbered value of your Australian assets exceeds the Relevant Amount, you may remove any of those assets from Australia or dispose of or deal with them or diminish their value, so long as the total unencumbered value of your Australian assets still exceeds the Relevant Amount.

(c)    If the unencumbered value of your Australian assets is less than the Relevant Amount, and you have assets outside Australia (ex-Australian assets):

(i)    You must not dispose of, deal with or diminish the value of any of your Australian assets and ex-Australian assets up to the unencumbered value of your Australian and ex-Australian assets of the Relevant Amount; and

(ii)    You may dispose of, deal with or diminish the value of any of your ex-Australian assets, so long as the unencumbered value of your Australian assets and ex-Australian assets still exceeds the Relevant Amount.

7.    For the purposes of this order,

(a)    your assets include:

(i)    all your assets, whether or not they are in your name and whether they are solely or co-owned;

(ii)    any asset which you have the power, directly or indirectly, to dispose of or deal with as if it were your own (you are to be regarded as having such power if a third party holds or controls the asset in accordance with your direct or indirect instructions); and

(iii)    in particular any money in the account in the name of UFC Enterprise Hillarys Pty Ltd: BSB 036-004; Account Number 683253

(b)    the value of your assets is the value of the interest you have individually in your assets.

EXCEPTIONS TO THIS ORDER

8.    This order does not prohibit you from:

(a)    paying up to $1,500 a week on your ordinary living expenses;

(b)    paying $25,000 on your reasonable legal expenses;

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

(d)    in relation to matters not falling within (a), (b) or (c), dealing with or disposing of any of your assets in discharging obligations bona fide and properly incurred under a contract entered into before this order was made, provided that before doing so you give the proposed applicant, if possible, at least two working days written notice of the particulars of the obligation.

9.    You and the proposed applicant may agree in writing that the exceptions in the preceding paragraph are to be varied. In that case the proposed applicant or you must as soon as practicable file with the Court and serve on the other a minute of a proposed consent order recording the variation signed by or on behalf of the proposed applicant and you, and the Court may order that the exceptions are varied accordingly.

10.    (a)        This order will cease to have effect if you:

(i)    pay the sum of $200,000 into Court; or

(ii)    pay that sum into a joint bank account in the name of your solicitor and the solicitor for the proposed applicant as agreed in writing between them; or

(iii)    provide security in that sum by a method agreed in writing with the proposed applicant to be held subject to the order of the Court.

(b)    Any such payment and any such security will not provide the proposed applicant with any priority over your other creditors in the event of your insolvency.

(c)    If this order ceases to have effect pursuant to (a), you must as soon as practicable file with the Court and serve on the proposed applicant notice of that fact.

COSTS

11.     The costs of this application are reserved to the Judge hearing the application on the Return Date.

PERSONS OTHER THAN THE PROPOSED APPLICANTS AND PROPOSED RESPONDENTS

12.     Set off by banks

This order does not prevent any bank from exercising any right of set off it has in respect of any facility which it gave you before it was notified of this order.

Bank withdrawals by the proposed respondents

No bank need inquire as to the application or proposed application of any money withdrawn by you if the withdrawal appears to be permitted by this order.

13.     Persons outside Australia

(a)    Except as provided in para (b) below, the terms of this order do not affect or concern anyone outside Australia.

(b)    The terms of this order will affect the following persons outside Australia:

(i)    you and your directors, officers, employees and agents (except banks and financial institutions);

(ii)    any person (including a bank or financial institution) who:

(A)    is subject to the jurisdiction of this Court; and

(B)    has been given written notice of this order, or has actual knowledge of the substance of the order and of its requirements; and

(C)    is able to prevent or impede acts or omissions outside Australia which constitute or assist in a disobedience breach of the terms of this order; and

(iii)    any other person (including a bank or financial institution), only to the extent that this order is declared enforceable by or is enforced by a court in a country or state that has jurisdiction over that person or over any of that person's assets.

14.     Assets located outside Australia

Nothing in this order shall, in respect of assets located outside Australia, prevent any third party from complying or acting in conformity with what it reasonably believes to be its bona fide and properly incurred legal obligations, whether contractual or pursuant to a court order or otherwise, under the law of the country or state in which those assets are situated or under the proper law of any contract between a third party and you, provided that in the case of any future order of a court of that country or state made on your or the third party's application, reasonable written notice of the making of the application is given to the proposed applicant.

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

SCHEDULE A

UNDERTAKINGS GIVEN TO THE COURT BY THE PROPOSED APPLICANTS

(1)    The proposed applicants undertake to submit to such order (if any) as the Court may consider to be just for the payment of compensation (to be assessed by the Court or as it may direct) to any person (whether or not a party) affected by the operation of the order.

(2)    As soon as practicable, the proposed applicants will file and serve upon the proposed respondents copies of:

(a)    this order;

(b)    the application for this order for hearing on the Return Date;

(c)    the following material in so far as it was relied on by the proposed applicants at the hearing when the order was made:

(i)    affidavits (or draft affidavits);

(ii)    exhibits capable of being copied;

(iii)    any written submission; and

(iv)    any other document that was provided to the Court.

(d)    a transcript, or, if none is available, a note, of any exclusively oral allegation of fact that was made and of any exclusively oral submission that was put, to the Court;

(e)    the originating process, or, if none was filed, any draft originating process produced to the Court.

(3)    As soon as practicable, the proposed applicants will cause anyone notified of this order to be given a copy of it.

(4)    The proposed applicants will pay the reasonable costs of anyone other than the proposed respondents which have been incurred as a result of this order, including the costs of finding out whether that person holds any of the proposed respondents’ assets.

(5)    If this order ceases to have effect the proposed applicants will promptly take all reasonable steps to inform in writing anyone who has been notified of this order, or whoever has reasonable grounds for supposing may act upon this order, that it has ceased to have effect.

(6)    The proposed applicants will not, without leave of the Court, use any information obtained as a result of this order for the purpose of any civil or criminal proceedings, either in or outside Australia, other than this proceeding.

(7)    The proposed applicants 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 proposed respondents or the proposed respondents’ assets.

(8)    One or all proposed applicants will:

(a)    if ordered, on or before a date to be determined by the Court cause an irrevocable undertaking to pay in the sum of $25,000 to be issued by a bank with a place of business within Australia, in respect of any order the court may make pursuant to undertaking (1) above; and

(b)    immediately upon issue of the irrevocable undertaking, cause a copy of it to be served on the respondents.

SCHEDULE B

AFFIDAVITS RELIED ON

NAME AND ADDRESS OF PROPOSED APPLICANTS’ LEGAL REPRESENTATIVES

The proposed applicants’ legal representatives are:

HHG Legal Group

Cloisters Square

863 Hay St

PERTH WA 6000

Ref: RHP/AH: 117316

Contact: 9211 2653 (Riaan Piek/Adam Hughes)

Email: riaan.piek@hhg.com.au; adam.hughes@hhg.com.au

REASONS FOR JUDGMENT

FEUTRILL J:

1    This matter came before me as an urgent ex parte duty matter on 29 November 2024. After hearing the prospective applicants ex parte I made freezing orders with respect to two prospective respondents and asset preservation orders with respect to another prospective respondent. These are my reasons for those orders.

Background

2    In substance, the prospective proceedings concern a dispute between Gavin Yong Khoon Yap, on the one hand, and Yu Lu, on the other, relating to the ownership, control and management of a number of ‘Ultimate Fried Chicken’ businesses. The prospective applicants in the proceeding are UFC Enterprise Morley Pty Ltd (first prospective applicant), UFC Enterprise Cockburn Pty Ltd (second prospective applicant) and UFC Trading Enterprise Pty Ltd (third prospective applicant). The prospective respondents are UFC Enterprise Northbridge Pty Ltd (first prospective respondent), UFC Enterprise Hillarys Pty Ltd (second prospective respondent) and Mr Lu (third prospective respondent).

3    UFC Trading is the owner of a business name ‘Ultimate Fried Chicken’. It was the company that established the first UFC business and, according to the evidence of Mr Yap, is the company that was intended to be the holder of the issued share capital in other companies to be incorporated to conduct UFC businesses at various locations. Eighty percent of the issued share capital in UFC Trading is held by Dino Sheref. Twenty percent of the issued share capital in UFC Trading is held by Renqiu Zhang. Mr Sheref holds his shares in UFC Trading on trust for Mr Yap. According to the evidence of Mr Yap, Ms Zhang is Mr Lu’s mother and she holds her shares in UFC Trading on trust for Mr Lu. Following a dispute concerning the control and management of UFC Trading, Mr Yap and Mr Sheref were appointed directors of that company.

4    UFC Morley conducts a UFC business from premises located in Morley. Seventy percent of the issued shares in UFC Morley are owned by Mr Sheref as trustee for Mr Yap and twenty percent of the shares are owned by Ms Zhang as trustee for Mr Lu. Ten percent of the issued shares in UFC Morley are held by Man Yan Yu, also known as Yannis Yu, who has an interest in the UFC business operated at the Morley site. On 27 November 2024 at a meeting of the shareholders of UFC Morley Mr Lu was removed as a director and Mr Yap was appointed. As a consequence, the directors of that company are Mr Yap and Mr Sheref.

5    UFC Cockburn conducts a UFC business from premises located in Cockburn. Ninety percent of the issued shares in UFC Cockburn are owned by UFC Trading. An ASIC historical company extract records that 10% of the issued shares in that company are owned by Yu-Chieh Wang. According to the evidence of Mr Yap, Ms Wang intended to transfer her shares to UFC Trading in January 2024 and confirmed her intentions to do so by letter dated 28 November 2024. A copy of the letter is an exhibit to Mr Yap’s affidavit. On 28 November 2024 by resolution passed by its sole member, UFC Trading, Mr Lu was removed and Mr Yap appointed a director of UFC Cockburn.

6    UFC Northbridge conducts a UFC business from premises located in Northbridge. An ASIC historical company extract records that Mr Lu owns 100% of the issued shares in UFC Northbridge. Mr Lu is the sole director of UFC Northbridge. Mr Yap deposes that it was intended that UFC Trading be the owner of 100% of the issued share capital in that company. Accordingly, there is now a dispute about the beneficial ownership of the shares in UFC Northbridge and, consequently, the extent to which Mr Lu is entitled to exercise the voting shares in that company and remain a director and in control of the management of that company.

7    UFC Hillarys conducts a UFC business from premises located in Hillarys. An ASIC historical company extract records that each of Mr Lu and Ms Yu own 50% of the issued shares in UFC Hillarys. Mr Yap deposes that it was intended that UFC Trading be the owner of 50% of the issued capital in that company. Consequently, there is also a dispute about ownership of that company. As matters stand, Mr Lu is the sole director of UFC Hillarys.

8    Mr Yap deposes that Mr Lu has left Australia, and immediately before leaving Australia, without informing the other directors or shareholders or obtaining their authorisation, Mr Lu increased the bank transfer limits for UFC Cockburn and UFC Morley bank accounts. At that time, Mr Lu had authority to operate the bank accounts of those companies. On 18 November 2024 Mr Lu transferred $50,000 from UFC Morley’s bank account to UFC Hillarys’ account. On the same day, he transferred $25,000 from UFC Cockburn’s bank account to UFC Hillarys’ account. On 19 November 2024 Mr Lu transferred $50,000 from UFC Morley’s bank account to UFC Hillarys’ account and, on the same day, he transferred a further $25,000 from UFC Cockburn’s bank account to UFC Hillarys’ account. On 26 November 2024 Mr Lu transferred $50,000 from UFC Morley’s bank account to UFC Hillarys account. Therefore, Mr Lu made unauthorised transfers of $150,000 from UFC Morley to UFC Hillarys and $50,000 from UFC Cockburn to UFC Hillarys. As a consequence, Mr Lu has the ability, through his sole directorship of UFC Hillarys, to control that company’s bank account and $200,000 in funds that Mr Yap contends belongs to UFC Morley and UFC Cockburn. At the time of the transfers, Mr Lu was a director of UFC Morley and UFC Cockburn.

9    Mr Yap deposes of the existence of an alleged written loan agreement by which UFC Morley agreed to lend UFC Hillarys $100,000 signed by Mr Lu as director of each company. Mr Yap deposes that the loan agreement was not authorised by the shareholders of the companies, UFC Trading and Ms Yu. Mr Yap also deposes that UFC Hillarys has upcoming expenditure of $120,000 to fit out leased premises, but he deposes that it was intended that UFC Trading, not UFC Morley, would provide the funding for that fit out.

10    The bank account of UFC Northbridge also remains under the control of Mr Lu as the sole director of that company. Mr Lu set up a facility known as ‘Point of Sale’ payment at the Northbridge premises so that all revenue from the Northbridge business is directed to the UFC Northbridge’s bank account. As a consequence, all trading income from the UFC Northbridge business is under the control of Mr Lu. As of 28 November 2024, the amount in the UFC Northbridge bank account was $332,995.24.

Application for freezing orders

11    The three prospective applicants apply for freezing orders against the prospective respondents under r 7.01 and r 7.32 of the Federal Court Rules 2011 (Cth). Rule 7.01 allows, where a matter is urgent, for a person who intends to start a proceeding to apply to the Court without notice for, amongst other things, an order granting an injunction. A prospective applicant seeking an order under that rule must give an undertaking to the Court to start a proceeding in relation to the subject matter of the application within 14 days after the application has been determined. In this case, that undertaking was given. Rule 7.32 provides that a Court may make a freezing order with or without notice to a prospective respondent for the purpose of preventing the frustration or inhibition of the Court’s process by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partially unsatisfied.

12    The application was also brought under s 1324(4) of the Corporations Act 2001 (Cth). That section provides that where, in the opinion of the Court it is desirable to do so, the Court may grant an interim injunction pending determination of an application under s 1324(1) of the Corporations Act. Section 1324(1) of the Corporations Act provides:

(1)    Where a person has engaged, is engaging or is proposing to engage in conduct that constituted, constitutes or would constitute:

(a)    contravention of this Act; or

(b)    attempting to contravene this Act; or

(c)    aiding, abetting, counselling or procuring a person to contravene this Act; or

(d)    inducing or attempting to induce, whether by threats, promises or otherwise, a person to contravene this Act; or

(e)    being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of this Act; or

(f)    conspiring with others to contravene this Act;

the Court may, on the application of ASIC, or of a person whose interests have been, are or would be affected by the conduct, grant an injunction, on such terms as the Court thinks appropriate, restraining the first-mentioned person from engaging in the conduct and, if in the opinion of the Court it is desirable to do so, requiring that person to do any act or thing.

Applicable principles

13    The principles applicable to circumstances in which a freezing order will be made are well established. These may be summarised as follows:

(1)    The language of r 7.32 of the Rules reflects what has been considered to be a general power of the Court to grant a Mareva injunction under s 23 of the Federal Court of Australia Act 1976 (Cth): Jackson v Sterling Industries Ltd [1987] HCA 23; 162 CLR 612 at 622-623 (Deane J).

(2)    As a general proposition, a freezing order may be granted if the applicant demonstrates a prima facie or good arguable case for final relief and the circumstances are such that there is a danger of the respondent absconding, or a danger of the assets being removed out of the jurisdiction or disposed of within the jurisdiction or otherwise dealt with so that there is a danger that the applicant, if it gets judgment, will not be able to get it satisfied: Deputy Commissioner of Taxation v Hua Wang Bank Berhad [2010] FCA 1014; 273 ALR 194 at [8] (Kenny J) and the authorities there cited.

(3)    The reference in r 7.32 to a ‘danger’ that a judgment or prospective judgment will go wholly or partly unsatisfied is a reference to a risk of that outcome. The risk must be real or substantial as opposed to a remote or speculative or theoretical possibility. The applicant must prove facts from which the Court can infer the existence of a real or substantial risk on the balance of probabilities: Duro Felguera Australia Pty Ltd v Trans Global Projects Pty Ltd (in liq) [2018] WASCA 174; 53 WAR 201 at [42]-[43] (Buss P, Murphy and Mitchell JJA) and the authorities there cited.

(4)    It is not necessary to establish that judgment will be unsatisfied unless a freezing order is made. Nor is it necessary to demonstrate that a respondent has a positive intention to frustrate a judgment. However, there must be facts from which ‘a prudent, sensible commercial’ person can ‘properly infer a danger of default if assets are removed from the jurisdiction’. That may include facts concerning a lack of available information about a respondent: Hua Wang Bank Berhad at [9]-[12] (Kenny J) and the authorities there cited. See, also, Severstal Export GmbH v Bhushan Steel Ltd [2013] NSWCA 102; 84 NSWLR 141 at [59]-[60] (Bathurst CJ, Beazley P and Barrett JA agreeing); Trans Global Projects at [45].

(5)    The mere fact of removal or danger of removal of assets from the jurisdiction will not necessarily give rise to a danger or risk that a judgment will go unsatisfied. In this regard, it is necessary to take into account any reciprocal regimes for the registration and enforcement of judgments and other means by which a judgment may be enforced: Trans Global Projects at [47]-[48]; Severstal Export at [63]-[65].

(6)    Ultimately, it is a question for evaluation by the Court as to whether the degree of the danger or risk is sufficient to justify an order in the terms made. In making that evaluative assessment, the Court will bear in mind that a freezing order is a drastic remedy which imposes a severe restriction on a respondent’s right to deal with its assets, and that the purpose of the order is not to provide security for a judgment which the applicant hopes to obtain and fears might not be satisfied: Trans Global Projects at [44] and the authorities there cited.

14    For reasons that will be explained later, the principles applicable to the grant of interlocutory injunctions pending resolution of a dispute are also relevant to the dispute concerning ownership of the issued shares in UFC Northbridge and control of the management, and, therefore, control of the assets of that company including the money in its bank account. Again, these principles are well established. The principles require there to be a serious question to be tried and that the balance of convenience favour the order for an interlocutory restraint pending determination of the substantive dispute. The Full Court set out the ‘correct approach’ in Samsung Electronics Co Ltd v Apple Inc [2011] FCAFC 156; 217 FCR 238 at [52]-[74]. Applicants must first show that they have a prima facie case in the sense of ‘a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial’: Australian Broadcasting Corporation v O'Neill [2006] HCA 46; 227 CLR 57 at 65 (Gummow and Hayne JJ, Gleeson CJ and Crennan J agreeing). This is commonly referred to as a serious question to be tried. What will be sufficient will depend on ‘the nature of the rights [the applicant] asserts and the practical consequences likely to flow from the order he seeks’: Beecham Group Ltd v Bristol Laboratories Pty Ltd [1968] HCA 1; 118 CLR 618 at 622. Secondly, a party must also demonstrate that the balance of convenience and justice favour the grant of an injunction.

The reasons that freezing orders and an interlocutory injunction were granted

15    For the purposes of an application for an urgent ex parte freezing order, in my view, the evidence discloses a good arguable claim that Mr Lu breached statutory and equitable duties he owed UFC Morley and UFC Cockburn as a director by transferring funds in an unauthorised manner from UFC Morley and UFC Cockburn to UFC Hillarys. There are, at least, good arguable claims for breaches of s 181 and s 182 of the Corporations Act. Breaches of those provisions permit compensation to be recovered under s 1317H of the Corporations Act. Similarly, there are good arguable claims for breaches of fiduciary duties and for equitable compensation. Therefore, UFC Morley and UFC Cockburn have good arguable claims for damages or compensation against Mr Lu.

16    Insofar as UFC Hillarys is concerned, there are good arguable claims that, through Mr Lu as a common director, UFC Hillarys was knowingly concerned in Mr Lu’s breaches of duty and (or) a knowing recipient of property of UFC Morley and UFC Cockburn in breach of Mr Lu’s duties and, thereby, UFC Hillarys is personally liable to compensate UFC Morley and UFC Cockburn.

17    There is evidence to the effect that Mr Lu is a citizen of the People’s Republic of China. There is evidence that he has left Australia. There is evidence that he made unauthorised transfers of large sums of money from UFC Morley and UFC Cockburn to UFC Hillarys, a company controlled by him. Although there is some evidence to suggest that the transfers may have been made pursuant to a purported loan agreement, the validity of that loan agreement is disputed. These facts are sufficient to give rise to a prudent, sensible, commercial person inferring a danger of default if assets are removed from the jurisdiction. These may be seen as steps preparatory to removing assets from the jurisdiction and to place them beyond the reach of the Court’s processes for enforcement of judgments. There was no evidence before the Court that an Australian judgment is able to be enforced in China or any other jurisdiction in which Mr Lu has or may have assets. As the matter was heard ex parte, I infer that if there were any relevant reciprocal enforcement arrangements, counsel for the prospective applicants would have drawn the Court’s attention to them.

18    For these reasons, I was satisfied that it was appropriate to grant a freezing order, at least for a short period until the matter could be heard inter partes in respect of the assets of UFC Hillarys and Mr Lu up to the amount of $200,000; namely, the amount that had been removed in an allegedly unauthorised manner, from the bank accounts of UFC Morley and UFC Cockburn.

19    With respect to UFC Northbridge, the evidence does not disclose any apparent good arguable claim by any of the prospective applicants against that company for damages or compensation. Unlike UFC Hillarys, where funds had been removed from UFC Morley and UFC Cockburn and transferred to UFC Hillarys, there is no evidence of transfers of funds from a prospective applicant to UFC Northbridge. Accordingly, I was not satisfied that it was appropriate to make a freezing order with respect to the assets of UFC Northbridge.

20    Nonetheless, on the facts disclosed in the affidavits in support of the application, it is evident that there is a dispute as to the ownership of the issued shares in UFC Northbridge. That, in turn, involves a dispute as to the right to appoint directors and to control the management of that company. I am satisfied by reference to Mr Lu’s control as a director of UFC Northbridge and the actions he has taken whilst a director of UFC Morley and UFC Cockburn that there is a risk that he may breach his duties as a director of UFC Northbridge and remove or otherwise dissipate the assets of UFC Northbridge. That is to say that there is a risk that Mr Lu may mismanage the affairs of UFC Northbridge pending resolution of the dispute as to the beneficial owner of the issued shares in that company. Therefore, there is a risk that the affairs of UFC Northbridge may be conducted in such a manner that if UFC Trading is successful, the value of its shares in UFC Northbridge will be diminished.

21    It follows that, while I was not satisfied that a freezing order should be made, I was satisfied that an asset preservation order was warranted so as to restrain UFC Northbridge from disposing of its assets, other than in the ordinary course of its business, pending resolution of the dispute about the beneficial ownership of the shares in that company and the right to control the management and affairs of that company. I was satisfied that until the dispute concerning beneficial ownership of the shares in UFC Northbridge is resolved, the company should be restrained from implementing management decisions that could have a substantial effect on the current and future affairs of the company such as the payment of dividends or entering into transactions that may dispose or diminish the overall assets of the company in the meantime. Again, having regard to the information contained in the affidavits filed in support of the application, together with the relatively brief period of the freezing order pending an inter partes hearing, I was satisfied that it was appropriate to make an asset preservation order restraining UFC Northbridge, subject to certain conditions, from disposing of $330,000 of the money presently held in its bank account.

22    Although the interlocutory injunction operates to restrain UFC Northbridge, as Mr Lu is the sole director of that company, it has the practical effect of also restraining him from conducting the management of the affairs of that company in a manner that is or may be detrimental to UFC Trading if UFC Trading is ultimately found to be entitled to the shares in UFC Northbridge. Therefore, no separate injunction was made against Mr Lu regarding management of the affairs of UFC Northbridge.

Associate:

Dated:    4 December 2024