Federal Court of Australia

Chu v Lin, in the matter of Gold Stone Capital Pty Ltd (No 8) [2024] FCA 1520

ORDERS

THE COURT ORDERS THAT:

1.    Upon the plaintiffs, by their counsel, giving the usual undertaking as to damages, Chu Li, the fifth respondent, and Silver Altum Pty Ltd, the sixth respondent are restrained from:

(a)    selling, disposing of, further encumbering, otherwise dealing with, or diminishing the value of; or

(b)    carrying out or performing, or causing or permitting to be carried out or performed, any building, demolition, or other construction works to,

the property at and known as 33A Kings Road, Vaucluse, New South Wales (Folio Identifier 1/230111) until 5:00pm on 11 February 2025.

2.    The interlocutory process filed on 29 August 2024 be adjourned to 9:00am on 11 February 2025.

3.    Costs be reserved.

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

REASONS FOR JUDGMENT

GOODMAN J:

1    On 15 July 2024, Jackman J delivered reasons for judgment in this proceeding: Chu v Lin, in the matter of Gold Stone Capital Pty Ltd (Trial Judgment) [2024] FCA 766. In those reasons his Honour made findings adverse to various parties, including Mr David Darmali, and made directions for submissions concerning orders to give effect to the reasons ahead of a hearing, if needed, on 23 August 2024.

2    On 16 August 2024, Mr Darmali transferred title to the property known as 33A Kings Road, Vaucluse (Vaucluse property) to his wife, Ms Chu Li, and Silver Altum Pty Ltd.

3    On 23 August 2024, Jackman J made orders giving effect to his Honour’s reasons for judgment, and delivered reasons for doing so: Chu v Lin, in the matter of Gold Stone Capital Pty Ltd (No 4) [2024] FCA 980. Pursuant to those orders Mr Darmali is required to pay substantial amounts to the plaintiffs, which the plaintiffs submitted on this application exceed $10 million. The orders made by Jackman J are the subject of an appeal, which has been listed for hearing commencing on 24 March 2025.

4    On 29 August 2024, the plaintiffs filed an interlocutory process in which Ms Li and Silver Altum, among others, were named as respondents. The relief sought against Mr Darmali, Ms Li and Silver Altum included the making of freezing orders against them.

5    On 30 August 2024, Jackman J noted an undertaking of Ms Li and Silver Altum not to deal with their title to the Vaucluse property until the completion of a hearing on 27 September 2024 without the agreement in writing of the plaintiffs.

6    On 27 September 2024, Jackman J made an order (27 September 2024 order) in the following terms:

Upon the plaintiffs, by their counsel, giving the usual undertaking as to damages, Chu Li, the fifth respondent, and Silver Altum Pty Ltd, the sixth respondent be restrained from dealing with their title to the property known as 33A Kings Road, Vaucluse, NSW (Folio Identifier 1/230111) until 7 November 2024, or such other time as agreed between each of the plaintiffs, the fifth respondent and the sixth respondent.

7    On 7 November 2024, his Honour made an order extending the 27 September 2024 order until 4:15pm on 4 December 2024.

8    On 4 December 2024, his Honour refused an application by Ms Li and Silver Altum to vary the 27 September 2024 order so as to allow the registration of a mortgage by a British Virgin Islands entity, Hero Max Holdings Ltd, to secure advances for the funding of the development of the Vaucluse property. His Honour’s reasons for doing so were published as Chu v Lin, in the matter of Gold Stone Capital Pty Ltd (No 7) [2024] FCA 1417. His Honour also extended the 27 September 2024 order until further order and listed the proceeding before him for further case management on 11 February 2025.

9    On 16 December 2024, the solicitors for Ms Li and Silver Altum notified the solicitors for the plaintiffs of Ms Li’s intention to commence the first stage of the development of the Vaucluse property, using her own funds, “immediately”. A subsequent email sent on 19 December 2024 indicated that Ms Li and Silver Altum intended to proceed “without further notice”. The plaintiffs’ solicitors then sought undertakings from Ms Li and Silver Altum to not do any works on the Vaucluse property until 5pm on 11 February 2025. On the morning of 20 December 2024, the solicitor for Ms Li and Silver Altum indicated that the undertakings would not be provided.

10    The plaintiffs now seek the following orders:

1.    Upon the plaintiffs, by their counsel, giving the usual undertaking as to damages, Chu Li, the fifth respondent, and Silver Altum Pty Ltd, the sixth respondent are restrained from:

a.    selling, disposing of, further encumbering, otherwise dealing with, or diminishing the value of, or

b.    carrying out or performing, or causing or permitting to be carried out or performed, any building, demolition, or other construction works to,

the property at and known as 33A Kings Road, Vaucluse, NSW (Folio Identifier 1/230111) until 5pm on 11 February 2025.

2.    Adjourn the interlocutory application to 9am on 11 February 2025.

11    There is no issue that the plaintiffs have a prima facie case. In this regard, the plaintiffs contend that the transfer of title to Ms Li and Silver Altum is a transaction that can be avoided or unwound in various different ways, including by Mr Darmali’s trustee in bankruptcy under s 121 of the Bankruptcy Act 1966 (Cth). Ms Li and Silver Altum contend that the transaction was genuine and supported by a valuation. They also claim to have entered into a loan, security and joint venture agreement to develop the Vaucluse property with Hero Max. I was informed that there is a contest about the genuineness of the arrangements with Hero Max.

12    As there is no issue that the plaintiffs have a prima facie case, the present application turns on the balance of convenience. The arguments on that issue were set out in correspondence exchanged between the solicitors for the parties between 16 and 19 December 2024 and to some extent expanded upon in oral submissions.

13    It is common ground that the existing dwelling on the Vaucluse property is presently uninhabitable. In this regard, there is some evidence that the costs of restoring the dwelling to a habitable state are estimated to be in the order of $350,000. The plaintiffs contend that works to be performed on the Vaucluse property may result in a diminution of the value of the property, for example: (1) the demolition of the existing dwelling would remove from the pool of potential purchasers of the Vaucluse property those who would be prepared to renovate the existing dwelling rather than demolish that dwelling and build another; (2) the works, which have an estimated time line of 16 months may be unfinished at a time when the Vaucluse property is transferred to the trustee. Ms Li and Silver Altum contend in effect that as the existing dwelling is uninhabitable any work on the Vaucluse property can only increase its value.

14    The evidence before the Court does not allow a detailed assessment to be made as to the nature of the proposed works or as to whether the proposed works would or would not result in a diminution in value of the Vaucluse property (or the extent of such a diminution). Nevertheless, it is readily conceivable that the value of that property may decrease in circumstances where one sector of the market of potential purchasers has been removed in the manner submitted by the plaintiffs; or where at a critical time it has unfinished building works on it.

15    Further, an email tendered on behalf of Ms Li and Silver Altum suggests that the works would not commence before 20 January 2025. As noted above, the order is sought until 11 February 2025, and thus would have practical application for a period of approximately three weeks.

16    Ms Li and Silver Altum also contend that they are incurring costs caused by the delay in commencement of the works including interest costs of $17,500 per month on the loan used to acquire the Vaucluse property; and that they will lose the opportunity to enter a building contract now at a lower price than they would be able to obtain if such a contract were to be entered into next year. To the extent that Ms Li and Silver Altum may incur costs or suffer a loss as a result in a delay in the commencement of works on the Vaucluse property, such costs and loss would be covered by the plaintiffs undertaking as to damages. There is no issue as to the adequacy of the plaintiffs’ proffered undertaking as to damages.

17    Ms Li and Silver Altum also contend that the amount recoverable on an action under s 121 of the Bankruptcy Act would be capped, by dint of s 121(5), at an amount in the order of $750,000 (being the difference between the plaintiffs’ valuation of $4.5 million and the consideration contended to have been received on the transfer of $3.75 million) and that the order sought is a disproportionate response given the value of the land. This is disputed by the plaintiffs who: (1) submit that the effect of a successful action under s 121 would be the transfer of the Vaucluse property to the trustee in bankruptcy, with any claim under s 121(5) then to be determined; and (2) have put in issue the receipt of the contended consideration.

18    In the circumstances, the balance of convenience favours the grant of the relief sought by the plaintiffs. I will make the orders sought.

Associate:    

Dated:    23 December 2024

SCHEDULE OF PARTIES