Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Super Vision Resources Ltd v AC Holdings Co Pty Ltd [2020] NSWCA 244 Hearing dates: 29 September 2020 Decision date: 30 September 2020 Before: McCallum JA Decision: Parties directed to bring in short minutes of order in accordance with these reasons. Catchwords: CIVIL PROCEDURE – appeal from decision dismissing claim to have sales transactions declared void – where respondents gave undertakings in the nature of freezing orders to preserve the moneys the subject of the appeal – application by respondents for release of funds for legal expenses and living expenses of company director Legislation Cited: Civil Procedure Act 2005 (NSW) Conveyancing Act 1919 (NSW), s 37A Cases Cited: Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18 Goumas v McIntosh [2002] NSWSC 713 Super Vision Resources Ltd v AC Holdings Co Pty Ltd [2020] NSWSC 65 Category: Procedural and other rulings Parties: Super Vision Resources Ltd (Appellant) AC Holdings Co Pty Ltd (First Respondent) Qiao Wang (Second Respondent) Lawrence Xu (Third Respondent) Representation: Counsel: J Knackstredt (Appellant) B Zipser (First and Second Respondents) Solicitors: Ashurst (Appellant) Zhang Shijing Lawyers (Respondents) File Number(s): 2020/57328 Publication restriction: None Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Division Citation: [2020] NSWSC 65 Date of Decision: 14 February 2020 Before: Stevenson J File Number(s): 2019/76024 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Judgment 1. McCALLUM JA: Super Vision Resources Ltd has appealed from a decision of the Supreme Court (Stevenson J) dismissing a claim in the Commercial List against AC Holdings Co Pty Ltd and Ms Qiao Wang: Super Vision Resources Ltd v AC Holdings Co Pty Ltd [2020] NSWSC 65. The proceedings concerned two properties sold to AC Holdings by one Mr Lawrence Xu. Mr Xu was a prospective creditor of Super Vision in his capacity as guarantor of a substantial loan advanced to a company he controlled. He sold the properties to AC Holdings during the course of proceedings against him to enforce the guarantee. Super Vision alleged (and the primary judge accepted) that he did so with the intent of defrauding his creditors. Super Vision sought declarations under s 37A(1) of the Conveyancing Act 1919 (NSW) that the sale transactions were void on that basis. Mr Xu is now bankrupt. 2. Ms Wang is the sole director and ultimate beneficial owner of AC Holdings. It appears to be common ground that she is its controlling mind. So far as AC Holdings and Ms Wang were concerned, the critical issue at trial was whether AC Holdings was "a purchaser in good faith not having, at the time of the alienation, notice of the intent to defraud creditors" within the meaning of s 37A(3), in which case the transactions were not voidable under s 37A(1). The primary judge held that Super Vision did not have standing as a person "prejudiced" by the alienation of the properties within the meaning of s 37A(1) and that, in any event, "Ms Wang was a purchaser in good faith without notice of Mr Xu's intent": at [9]. 3. Following the commencement of the appeal, the properties were sold by a mortgagee in possession. The proceeds of those sales (about $2.5m) are the property of AC Holdings. In the face of a contest as to the preservation of those funds, AC Holdings and Ms Wang gave undertakings in the nature of a freezing order and agreed to have the funds held in a controlled moneys account, subject to the release of $67,373.17 into the trust account of their solicitors, Zhang Shijing Lawyers, on account of their costs of defending the appeal. The release of that amount was without prejudice to the respondents' ability to seek the release of additional funds for that purpose. 4. By notice of motion filed 2 September 2020, AC Holdings and Ms Wang sought the release of a further $185,000 from the account for legal costs and for Ms Wang's living costs. The motion was referred to me as referrals judge on 14 September 2020. On that date, Super Vision indicated that it did not oppose the release of some additional funds to enable the respondents to brief senior counsel and for the past and future fees of existing junior counsel and the solicitor on the record for the forthcoming appeal, which is listed on 6 and 7 October 2020. On the strength of the uncontested estimates in evidence, Super Vision consented to the release of $80,000 for that purpose. 5. The motion was otherwise adjourned on the application of Super Vision to give it an opportunity to put on evidence as to its financial position. The need for that evidence was perceived because part of the legal expenditure foreshadowed by AC Holdings in support of the motion was directed to protecting its costs in the event that Super Vision loses the appeal. The motion was stood over to 29 September 2020 for that purpose. Super Vision subsequently served an affidavit sworn by its solicitor, Mr David Greenberg, which provides scant detail of the company's financial position other than to say that it holds real property assets in Australia in the form of mortgages valued at $8,360,000 as at the date of reports obtained in 2017 and 2018. 6. Some of the estimates of future legal costs initially given by Zhang Shijing Lawyers when the motion was filed have now crystallised as costs incurred. The total amount now sought from the controlled account (in addition to the $80,000 released by consent on 14 September 2020) is $123,614 made up as follows: (a) the costs of the present motion up to the conclusion of the hearing: $37,919 (b) the costs of attempting to reach agreement with Super Vision "to prevent SV from dissipating assets": $5,000 (c) living costs for Ms Wang up to 30 November 2020: $52,700 (d) an amount to "fill a gap" being past unbilled or billed but unpaid costs of junior counsel: $8,000 (e) buffer for legal costs $20,000 1. I have concluded that a further $50,000 should be released from the fund into the trust account of Zhang Shijing Lawyers on account of legal costs and disbursements. I am not persuaded that it is appropriate to release funds for Ms Wang's living costs. My reasons for those conclusions are as follows. Legal costs 1. Super Vision's position concerning legal costs of the appeal, in short, is that the amounts released thus far ($67,373.17 plus $80,000) are sufficient to fund the costs of the appeal based on the upper end of the previous estimates. No attempt was made to analyse the reasonableness of those estimates or their subsequent revision. It may be accepted that the amounts sought are substantial but I would not presume to have current familiarity with such matters and, in the absence of any specific challenge, am inclined to think I should accept the estimates given. In reaching that conclusion I am mindful of the fact that, whereas the properties were previously the subject of asset preservation orders continued after contested hearings in the Equity Division, AC Holdings now has the benefit of the judgment of Stevenson J and suffers the preservation of the fund in the controlled moneys account as a matter of concession pending the determination of the appeal. 2. As to the costs of the present application, Super Vision asserts that, at the time the motion was filed, it was "negotiating on the release of funds in good faith" and that the application was accordingly premature and ultimately wasteful. I do not accept that submission. The relevant chronology is that Zhang Shijing Lawyers first wrote to Ashurst, the solicitors for Super Vision, on Monday 3 August 2020 requesting the release of $30,000 in order to retain senior counsel to appear on the appeal. That was in circumstances where Super Vision had itself retained senior counsel to lead the junior counsel who appeared at the trial. They had prepared and served substantive submissions perceived by the respondent to raise "detailed and complex issues". The respondents were, as at 3 August 2020, required to serve their own submissions by 11 August 2020. Although that deadline was subsequently extended until 28 August 2020, AC Holdings notes that it would have been apparent to Super Vision that the respondents would wish to brief their chosen senior counsel in time for him to settle their submissions. 3. The respondents followed up the request of 3 August on Thursday 6 August 2020. Mr Greenberg responded with an apology for the delay. In his affidavit, he explained that Super Vision is "a Chinese State Owned Enterprise which has a comprehensive internal approval process meaning that seeking instructions from them often takes longer than it ordinarily would in dealing with an Australian based client". 4. On 17 August 2020, Mr Greenberg wrote to Zhang Shijing Lawyers stating that he had "sought instructions" from his client and seeking a meeting by telephone the following day. As it transpired, although instructions had been sought, they had still not been obtained. In the conversation that followed, Mr Greenberg suggested that, rather than discussing the early withdrawal of funds to pay AC Holdings' costs, Super Vision would "much prefer to discuss a total settlement of these proceedings if possible". As commendable as it was to seek to resolve the proceedings in that way, that proposal did not obviate the need for Super Vision to provide instructions as to the release of funds to enable the respondents to prepare to defend the appeal (whether or not those instructions were to be held in Mr Greenberg's back pocket pending the exhaustion of any settlement negotiations). 5. On Friday 28 August 2020, the respondents wrote seeking the release of substantial additional funds for legal expenses as well as for living expenses for Ms Wang. A response was sought by midday on Tuesday 1 September 2020. While that was an abrupt interruption to the proposed settlement negotiations, the deadline was not unreasonable having regard to the looming hearing date just over a month away. Mr Greenberg states that, at the time he received that email, he had still not received instructions from his client because he was expecting to receive a settlement offer from the respondents. A reply was sent on the Tuesday morning expressing the firm's surprise and stating that they had sought instructions "on an urgent basis". The firm said they "should be in a position to respond" by the end of the week and would let them know "if this timing changes". The respondents' motion was filed the following day. 6. I intend no criticism whatsoever of Mr Greenberg or his firm here but, as submitted by the respondents, Super Vision's failure or disinclination to provide instructions in a timely manner on an important issue during the weeks leading up to the hearing of the appeal is inimical to the objects of the Civil Procedure Act 2005 (NSW) and should not be condoned to the detriment of the respondents. The simple fact is that almost a month passed during which, Super Vision having filed its own detailed submissions under the hand of experienced senior counsel, the respondents' preparation for the appeal was at risk of being complicated if not impaired by uncertainty as to their access to a fund which, according to the judgment of Stevenson J, is owned by AC Holdings. 7. In those circumstances, I do not accept that the motion was premature. On the contrary, in the circumstances presented to the respondents, it was a necessary and appropriate step for them to take in order to ensure they would be properly prepared for the two day appeal. 8. As to the sum of $5,000 sought by way of "legal costs for attempting to reach agreement with Super Vision to prevent Super Vision from dissipating assets", Super Vision's position is that the proposed task was misconceived because Super Vision has substantial assets in Australia worth approximately $8.3m and has not been undertaking any improper activity with respect to those assets. 9. Separately, Super Vision relied on the fact that, in a similar context in the proceedings below, Hammerschlag J declined to require Super Vision to give security for an asset preservation order it obtained over AC Holdings' assets and instead required Super Vision to procure and proffer an undertaking of its parent entity, China Orient Asset Management (International) Holdings Ltd, to be liable for the undertaking as to damages. An undertaking in the same terms was provided as the price of the respondents' agreement to have the fund now in dispute held in the controlled moneys account. 10. The circumstances have changed somewhat since the orders of Hammerschlag J. Most importantly, Super Vision has been unsuccessful in establishing any complicity on the part of AC Holdings and Ms Wang in Mr Xu's presumed intention to defraud creditors. 11. As to Super Vision's financial position, Mr Greenberg's affidavit states "Super Vision is a subsidiary of a Hong Kong company, which is part of a group owning almost 1 trillion Yuan (approximately A$210b) in assets worldwide. Super Vision has almost $15m in Australian real property assets in the form of mortgages." At the hearing of the motion, it was clarified that the figure of $15m reflected lots held by Super Vision that have since been transferred and that the remaining lots are valued at $8,360,000 as at 2017 and 2018. The clarification of that error incidentally suggests that the proceeds of sale of the previous lots do not form part of any asset pool held by Super Vision in Australia. However, that was not raised at the hearing and I place no reliance on it. 12. In any event, the respondents presently have a substantial exposure to Super Vision the dimensions of which go beyond the value of its assets held in Australia. As matters stand at the moment, the respondents have a costs order in their favour for a hearing before the primary judge which, according to the cover sheet of the judgment, went for 8 days with written submissions filed after its conclusion. Meanwhile, Super Vision has no exposure for its costs in the event that the appeal succeeds; AC Holdings' only asset is preserved in the controlled moneys account. In my view it was reasonable in those circumstances for the respondents to incur $5,000 in legal costs in an attempt to obtain stronger protection for their exposure as to costs. 13. As to the $8,000 sought to fill a "gap" for past costs, Super Vision's objection was that the request was unexplained and appeared to subvert the initial agreement to release $67,373.17 from the controlled fund. There was an explanation, albeit in small print in a footnote to the respondents' written submissions: "The past unbilled costs of Zhang Shijing Lawyers were $15,840. The past billed but unpaid costs of Mr Zipser were $11,000. There was $19,157 in the Zhang Shijing Lawyers Trust Account. Therefore a top up of about $8,000 ($15,840 + $11,000 - $19,157) is needed to cover the past costs." 1. I see no reason not to include that amount in the allowance (the precise amount is $7,683 but the difference is immaterial in the larger scheme of this dispute). 2. Finally, the respondents seek a "buffer" of $20,000. While I understand their preference for a cautious approach, the likely need for any additional amount beyond the substantial sums already allowed is speculative at this stage. I am not persuaded to allow the release of an additional amount on that basis. Ms Wang's personal living expenses 1. Ms Wang's evidence, in summary, was that, as a result of the asset preservation orders obtained by Super Vision, AC Holdings has ceased to trade; that she has no other source of income and has been forced to live on the goodwill of friends and family and that she has outstanding debts to those persons and for her rental accommodation. She has made plain that AC Holdings will look to Super Vision's undertaking as to damages to recover its losses allegedly caused by the impact of the asset preservation orders. 2. It may be accepted that the purpose of an asset preservation order (or an undertaking accepted in its stead) is not "to stop people spending their money": Goumas v McIntosh [2002] NSWSC 713 at [23] (Barrett J). His Honour said at [27]: "It has been said repeatedly by the courts that a Mareva order must not operate as a form of de facto security for the applicants' claims and that the sole purpose is to prevent illegitimate dissipation of assets that will otherwise be available to meet any judgment. I say "illegitimate" dissipation to emphasise that to deny access to funds needed for ordinary living purposes or to fund the conduct of the very litigation the integrity of which the order is designed to protect goes beyond the proper protective province of the jurisdiction and causes the order sought to be a means of exerting pressure foreign to the underlying purpose." 1. The difficulty, however, is that the money in the controlled moneys account is not Ms Wang's money. She is the sole director and ultimate beneficial owner of the company. As already noted, she is also its controlling mind. However, it does not follow that AC Holdings' assets are hers to spend. There was no evidence as to whether the company has other liabilities, nor was it suggested that it has any liability to Ms Wang. Rather, the application rested on the subversive assertion that "in practical terms" the money in the controlled account belongs to Ms Wang. I reject that proposition. 2. Separately (and perhaps inconsistently), it was asserted that the company "wants to lend the money to Ms Wang" to cover her living expenses. In that context, Mr Zipser relied on the decision of the High Court in Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18 at [41]-[42], [75]. As submitted by Mr Knackstredt, who appears for Super Vision, that decision supports the inverse of the proposition for which it is invoked by Ms Wang. The High Court at [75] proposed a form of order that would carve out of a preservation order against Mr and Mrs Cardile their entitlement to meet their own living expenses and the legal expenses of the company. The decision in Cardile is not authority for the proposition that an asset preservation order against a company can properly include an exception that permits the company's directors to deal with the frozen company assets for their own personal use. Orders 1. In an application that raised two principal issues, the respondents have been mostly successful on one and unsuccessful on the other. I consider that Super Vision should pay half the respondents' costs of the application. 2. I direct the parties to bring in short minutes of order in accordance with these reasons. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 September 2020