FEDERAL COURT OF AUSTRALIA Pei Xu v Wan Ze Property Development (Aust) Pty Ltd (in Liquidation) [2013] FCA 419 Citation: Pei Xu v Wan Ze Property Development (Aust) Pty Ltd (in Liquidation) [2013] FCA 419 Parties: PEI XU v WAN ZE PROPERTY DEVELOPMENT (AUST) PTY LTD (IN LIQUIDATION); KE QIN REN v WAN ZE PROPERTY DEVELOPMENT (AUST) PTY LTD (IN LIQUIDATION) ACN 131 642 147 File numbers: NSD 1339 of 2012 NSD 1341 of 2012 Judge: ROBERTSON J Date of judgment: 14 May 2013 Catchwords: PRACTICE AND PROCEDURE – non-compliance with Federal Court Bankruptcy Rules – no substantial injustice – application to intervene to bring funds under control of the Court – order that applicants in the substantive proceedings provide affidavits and produce documents as to circumstances of loan Legislation: Bankruptcy Act 1966 (Cth) ss 41(6A), 306(1) Federal Court of Australia Act 1976 (Cth) s 51 Federal Court Bankruptcy Rules 2005 (Cth) r 1.03 Cases cited: Sockhill v Deputy Commissioner of Taxation (2000) 178 ALR 113 Date of hearing: 6, 14 May 2013 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 23 Counsel for the Applicants: Mr MR Ellicott Solicitor for the Applicants: James Lee Solicitors Counsel for the Respondent: Mr DC Eardley Solicitor for the Respondent: Downeys Lawyers Pty Ltd Counsel for the Interveners: Mr DA Smallbone Solicitor for the Interveners: Austin Haworth Lexon Legal IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1339 of 2012 BETWEEN: PEI XU Applicant AND: WAN ZE PROPERTY DEVELOPMENT (AUST) PTY LTD (IN LIQUIDATION) ACN 131 642 147 Respondent JUDGE: ROBERTSON J DATE OF ORDER: 14 MAY 2013 WHERE MADE: SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1341 of 2012 BETWEEN: KE QIN REN Applicant AND: WAN ZE PROPERTY DEVELOPMENT (AUST) PTY LTD (IN LIQUIDATION) ACN 131 642 147 Respondent JUDGE: ROBERTSON J DATE OF ORDER: 14 MAY 2013 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The interlocutory application filed on 17 April 2013 constitutes an effective interim application under the Federal Court Bankruptcy Rules 2005 (Cth). 2. Ms Hong Jiang and Mr Yong An Xie are granted leave to intervene limited, for the present, to prosecuting their interlocutory application filed on 17 April 2013. 3. By 22 May 2013, each of Mr Ke Qin Ren and Ms Pei Xu produce to the Court the following documents in respect of the loan to Guo Wen Qi in the sum of RMB 12,000,000: (i) a copy of the bank statement or statements evidencing the source of the loan funds; (ii) if the funds the subject of the loan were sourced from any other account in the 5 preceding years, the bank statements for that account or those accounts. 4. By 22 May 2013, each of Mr Ke Qin Ren and Ms Pei Xu file and serve an affidavit deposing to: (i) the date on which Mr Guo Wen Qi left Australia; (ii) if the exact date on which Mr Guo Wen Qi left Australia is not known, the month and year that Mr Guo Wen Qi left Australia; (iii) the period of time that Mr Guo Wen Qi resided at 9 Nash Place North Ryde, New South Wales; (iv) the telephone (mobile and landline) and facsimile number/s for Mr Guo Wen Qi in China; (v) the email address for Mr Guo Wen Qi in China; (vi) the home and business address of Mr Guo Wen Qi in China; (vii) the bank account (Bank, account number and/or address) that the RMB 12,000,000 was paid to by Mr Ke Qin Ren for the benefit of Mr Guo Wen Qi; (viii) the date that the loan was made by Mr Ke Qin Ren to Mr Guo Wen Qi; (ix) whether the moneys the subject of the loan are moneys which the applicant is entitled to absolutely and which are not subject to or impressed with any trust; (x) whether or not Mr Ke Qin Ren whilst in China will be meeting with Mr Guo Wen Qi to facilitate the repayment of the loan. If not, the affidavit should state why not. (xi) The steps that have been and are being undertaken in respect of the repayment schedule of the loan. 5. Mr Ke Qin Ren and Ms Pei Xu are granted liberty to make an application in respect of order 4 seeking an extension of time for compliance. Any such application is to be supported by a short affidavit, to be provided to the associate to Robertson J and served on the other parties, including the interveners, and be returnable on 23 May 2013. 6. The interlocutory application is stood over to 23 May 2013 at 9.30 a.m. 7. The substantive matter is stood over for directions at 9.30 a.m. on 23 May 2013. 8. The directions hearing listed for the substantive proceedings on 17 May 2013 be vacated. 9. Time to comply with the bankruptcy notices 5138 and 5139 be extended up to and including 23 May 2013. 10. The costs of the interlocutory application, including the hearing on 14 May 2013, are reserved. The Court notes the extension of the undertaking of each of Mr Ke Qin Ren and Ms Pei Xu to the Court on 5 December 2012 to 5 December 2013. The Court notes the undertaking to the Court of Mr Ke Qin Ren by his counsel that in respect of the loan to Guo Wen Qi in the sum of RMB 12,000,000 referred to in Mr Ke Qin Ren's statement of assets and liabilities of 21 November 2012, that upon repayment or any partial repayment of the loan: (a) Mr Ke Qin Ren will transfer any such moneys to a bank account controlled by him in Australia; (b) upon the transfer of such moneys, Mr Ke Qin Ren, by his solicitors, will advise the solicitors for the respondent and the solicitors for the interveners of the amount of the repayment and the BSB and account number and name in which the amount is held in Australia; and (c) any amount or amounts referred to in (a) above, upon receipt, will be subject to the undertaking of Mr Ke Qin Ren to the Court on 5 December 2012, extended to 5 December 2013. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1339 of 2012 BETWEEN: PEI XU Applicant AND: WAN ZE PROPERTY DEVELOPMENT (AUST) PTY LTD (IN LIQUIDATION) ACN 131 642 147 Respondent JUDGE: ROBERTSON J DATE: 14 MAY 2013 PLACE: SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1341 of 2012 BETWEEN: KE QIN REN Applicant AND: WAN ZE PROPERTY DEVELOPMENT (AUST) PTY LTD (IN LIQUIDATION) ACN 131 642 147 Respondent JUDGE: ROBERTSON J DATE OF ORDER: 14 MAY 2013 WHERE MADE: SYDNEY REASONS FOR JUDGMENT 1 These reasons deal with an interlocutory application filed on 17 April 2013 by Ms Hong Jiang and Mr Yong An Xie. They seek to intervene to vary the interlocutory regime in bankruptcy proceedings "to bring under control of the Court funds which have been placed offshore". They submit that the present regime provides no or no adequate control of these funds. 2 The interlocutory relief claimed is that Ms Hong Jiang and Mr Yong An Xie be granted leave to intervene in the proceedings and that the applicants in the substantive proceedings provide security for the greater of AUD$1,865,000 or Chinese Yuan 12,000,000. Ancillary relief is also sought. The application was not opposed by the liquidator, the respondent in the substantive proceedings. It was opposed by the applicants in the substantive proceedings, Mr Ke Qin Ren and Ms Pei Xu. 3 The applicants in the substantive proceedings raised a procedural point at the commencement of the hearing. They submitted that the interlocutory application should have been brought under the Federal Court Bankruptcy Rules 2005 (Cth) whereas they were brought under the Federal Court Rules 2011. The submission was that the would-be interveners had no right to be heard on their application. 4 In my opinion the interlocutory application should have been brought under the Federal Court Bankruptcy Rules 2005 (Cth), but no prejudice let alone substantial injustice has flowed from this procedural defect: see s 51 of the Federal Court of Australia Act 1976 (Cth) and s 306(1) of the Bankruptcy Act 1966 (Cth). Those provisions are in the following terms respectively: 51 Formal defects not to invalidate (1) No proceedings in the Court are invalidated by a formal defect or an irregularity, unless the Court is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of the Court. (2) The Court or a Judge may, on such conditions (if any) as the Court or Judge thinks fit, make an order declaring that the proceeding is not invalid by reason of a defect that it or he or she considers to be formal, or by reason of an irregularity. 306 Formal defect not to invalidate proceedings (1) Proceedings under this Act are not invalidated by a formal defect or an irregularity unless the court before which the objection on that ground is made is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court. 5 In relation to the procedural point, I order, to the extent necessary, that the interlocutory application as filed constitutes an effective interim application under the Federal Court Bankruptcy Rules 2005 (Cth). 6 The power to do so is referred to or conferred by r 1.03 of the Federal Court Bankruptcy Rules 2005 (Cth). 7 Thus I reject the submission on behalf of the applicants in the substantive proceedings that the interveners had no right to be heard on their application. 8 As to the interlocutory application itself, Ms Hong Jiang and Mr Yong An Xie relied primarily on the affidavits dated 8 April 2013 and 19 April 2013 sworn by Irene Szikla, a solicitor in the firm of solicitors acting for them. The applicants in the substantive proceedings relied on certain parts of an affidavit affirmed on 6 May 2013 by Jeffrey Jen-Tze Lee, solicitor. 9 Ms Hong Jiang and Mr Yong An Xie were the plaintiffs in proceeding 51745 of 2011 and defendants in 304559 of 2012 in the Supreme Court of New South Wales. Costs orders were made in favour of Ms Hong Jiang and Mr Yong An Xie in each of those proceedings. 10 The first and second defendants in the proceedings 51745 of 2011, Ke Qin Ren and Pei Xu, who are the applicants in the substantive proceedings before me, on a summary judgment application were ordered to pay jointly and severally $2,364,995.70 to Wan Ze Property Development (Aust) Pty Ltd. Justice Black's judgment was given on 29 June 2012. That company is now in liquidation and the liquidator is the respondent in the substantive proceedings before me. The company has issued bankruptcy notices against Ke Qin Ren and Pei Xu founded on the judgment for $2,364,995.70. 11 Justice Black made orders on 13 March 2013 in the second of those two proceedings which were for leave under s 471B of the Corporations Act 2001 (Cth) to commence a proposed action to set aside the earlier judgment of Black J for fraud and bad faith. Justice Black dismissed the application for leave. The application did not directly attack the findings in the earlier judgment as to the $2,364,995.70. On 19 April 2013 Black J made orders that the plaintiffs, the present applicants, pay the costs of the defendants, including the present interveners, in proceedings 304559 of 2012. 12 An "appeal" from some of the orders and claims for other relief are pending in the New South Wales Court of Appeal. There has been no stay of the orders of Black J. There is a summons for leave to appeal and a motion for leave under s 471B of the Corporations Act 2001 for leave to proceed with the summons. The interveners have filed in the Court of Appeal a motion to stay the s 471B motion until security for costs is given and that Court or this Court has control of the $1,865,000. I understand these matters were listed before the Registrar of the New South Wales Court of Appeal for directions on 6 May 2013. 13 There is also a loan agreement dated 21 October 2010 in evidence between Ke Qin Ren as borrower and Yong An Xie as lender in the amount of RMB 3,000,000. The interest liability is calculated at approximately $68,000. 14 As to the application to intervene, the liquidator's report dated 5 September 2012 showed that the directors of the company in liquidation had notified the liquidator that Ms Hong Jiang and Mr Yong An Xie were unsecured creditors in the amount of $1,980,000. 15 In the circumstances of the present case, I would grant Ms Hong Jiang and Mr Yong An Xie leave to intervene limited, for the present, to prosecuting their interlocutory application. I refer particularly to the costs orders in the 2011 and 2012 proceedings in the Supreme Court of New South Wales. In my opinion that is a sufficient basis for granting the interveners that leave. I note also the interveners' interest in the company which has the judgment for $2,364,995.70 and the liquidator's report to which I have referred. At present I do not think there is either a need to grant any wider leave nor would any wider leave be appropriate. 16 As to the application for security itself, it focuses on a copy of the statement of assets and liabilities filed by Ke Qin Ren which shows he has lent a sum of RMB 12,000,000 (some AUD $1,865,000) to Guo Wen Qi in the People's Republic of China. 17 The interveners submit that it is likely that the money said to be with Guo Wen Qi is part of the amount which Black J has held was abstracted from the company. 18 A principal basis for this claim is the difficulty the interveners have had in obtaining any information from Ke Qin Ren and Pei Xu, the respondents in the substantive proceedings before me. 19 In my view there is presently insufficient material presently on which to found the conclusion for which the interveners contend. 20 There is no doubt the Court has power to impose some conditions as an incident of the discretion in s 41(6A) of the Bankruptcy Act 1966: see also Sockhill v Deputy Commissioner of Taxation (2000) 178 ALR 113, especially at [12]. At the moment that is a sufficient basis on which to make the orders I propose to make. 21 I note the present undertakings given to the Court by each of the applicants. I also note the undertaking proffered by counsel on 1 May 2013 on behalf of Mr Ke Qin Ren that as and when the loan is repaid all of the amounts repaid will be repatriated to Australia. I further note the caveats over the applicants' properties. As I have said, I am not presently persuaded that the money said to be with Guo Wen Qi is part of the amount which Black J held was abstracted by the present applicants from the company. Nevertheless, without prejudice to the final hearing of the interveners' interlocutory application, I am persuaded that the present applicants should provide further information to the parties and to the Court as a condition of the grant of the interlocutory relief which they seek to maintain. 22 I therefore make the following orders directed to obtaining information about the loan. I follow the request for information set out in particular parts of the letter of 3 May 2013 from the liquidator's solicitors to the solicitors for the applicants in the substantive proceedings, that letter being subsequent to the first part of this interlocutory hearing on 1 May 2013. 1. The interlocutory application filed on 17 April 2013 constitutes an effective interim application under the Federal Court Bankruptcy Rules 2005 (Cth). 2. Ms Hong Jiang and Mr Yong An Xie are granted leave to intervene limited, for the present, to prosecuting their interlocutory application filed on 17 April 2013. 3. By 22 May 2013, each of Mr Ke Qin Ren and Ms Pei Xu produce to the Court the following documents in respect of the loan to Guo Wen Qi in the sum of RMB 12,000,000: (i) a copy of the bank statement or statements evidencing the source of the loan funds; (ii) if the funds the subject of the loan were sourced from any other account in the 5 preceding years, the bank statements for that account or those accounts. 4. By 22 May 2013, each of Mr Ke Qin Ren and Ms Pei Xu file and serve an affidavit deposing to: (i) the date on which Mr Guo Wen Qi left Australia; (ii) if the exact date on which Mr Guo Wen Qi left Australia is not known, the month and year that Mr Guo Wen Qi left Australia; (iii) the period of time that Mr Guo Wen Qi resided at 9 Nash Place North Ryde, New South Wales; (iv) the telephone (mobile and landline) and facsimile number/s for Mr Guo Wen Qi in China; (v) the email address for Mr Guo Wen Qi in China; (vi) the home and business address of Mr Guo Wen Qi in China; (vii) the bank account (Bank, account number and/or address) that the RMB 12,000,000 was paid to by Mr Ke Qin Ren for the benefit of Mr Guo Wen Qi; (viii) the date that the loan was made by Mr Ke Qin Ren to Mr Guo Wen Qi; (ix) whether the moneys the subject of the loan are moneys which the applicant is entitled to absolutely and which are not subject to or impressed with any trust; (x) whether or not Mr Ke Qin Ren whilst in China will be meeting with Mr Guo Wen Qi to facilitate the repayment of the loan. If not, the affidavit should state why not. (xi) The steps that have been and are being undertaken in respect of the repayment schedule of the loan. 5. Mr Ke Qin Ren and Ms Pei Xu are granted liberty to make an application in respect of order 4 seeking an extension of time for compliance. Any such application is to be supported by a short affidavit, to be provided to the associate to Robertson J and served on the other parties, including the interveners, and be returnable on 23 May 2013. 6. The interlocutory application is stood over to 23 May 2013 at 9.30 a.m. 7. The substantive matter is stood over for directions at 9.30 a.m. on 23 May 2013. 8. The directions hearing listed for the substantive proceedings on 17 May 2013 be vacated. 9. Time to comply with the bankruptcy notices 5138 and 5139 be extended up to and including 23 May 2013. 10. The costs of the interlocutory application, including the hearing on 14 May 2013, are reserved. The Court notes the extension of the undertaking of each of Mr Ke Qin Ren and Ms Pei Xu to the Court on 5 December 2012 to 5 December 2013. The Court notes the undertaking to the Court of Mr Ke Qin Ren by his counsel that in respect of the loan to Guo Wen Qi in the sum of RMB 12,000,000 referred to in Mr Ke Qin Ren's statement of assets and liabilities of 21 November 2012, that upon repayment or any partial repayment of the loan: (a) Mr Ke Qin Ren will transfer any such moneys to a bank account controlled by him in Australia; (b) upon the transfer of such moneys, Mr Ke Qin Ren, by his solicitors, will advise the solicitors for the respondent and the solicitors for the interveners of the amount of the repayment and the BSB and account number and name in which the amount is held in Australia; and (c) any amount or amounts referred to in (a) above, upon receipt, will be subject to the undertaking of Mr Ke Qin Ren to the Court on 5 December 2012, extended to 5 December 2013. 23 There was apparently some difficulty between the parties in reaching agreement on orders formalising the orders I made on 6 May 2013. The matter was relisted at the request of the interveners on 14 May 2013. The only matter of substance was whether there should be an order against Ms Pei Xu to the same substantive effect as the undertaking given by Mr Ke Qin Ren in respect of the loan to Guo Wen Qi in the sum of RMB 12,000,000. This in turn depended on whether the undertaking had been given by counsel for the applicants before me on behalf only of Mr Ke Qin Ren or whether it had also been given on behalf of Ms Pei Xu. A reading of the transcript of 1 May 2013 confirmed that the undertaking had been given on behalf only of Mr Ke Qin Ren. Thus the relisting of the matter on 14 May 2013 should not have been necessary. Further, it was not appropriate to relist the matter to seek to vary, in any substantive way, the orders I had pronounced on 6 May 2013. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Robertson. Associate: Dated: 14 May 2013